DEBT FINANCING AND SHAREHOLDERS WEALTH CREATION OF QUOTED MANUFACTURING FIRMS IN NIGERIA
Keywords:
Cash Value Added, Debt Financing, Debt Ratio, Earnings Per Share, Long Term Debt Ratio, Return on Equity, Shareholders Wealth Creation, Short Term Debt Ratio.Abstract
This study examined the effect of debt financing on shareholders wealth creation of quoted manufacturing firms in Nigeria for a period of ten (10) years covering from 2012-2021. Specifically, this study ascertained the effect of debt ratio on earnings per share; effect of short term debt ratio on return on equity; effect of long term debt ratio on cash value added. Panel data were used in this study, which were obtained from the annual reports and accounts of twenty (21) sampled quoted manufacturing firms for the periods 2012-2021. Ex-Post Facto research design was employed. Descriptive statistics of the dataset from the sampled firms were used to describe using the mean, standard deviation, minimum and maximum values of the data for the study variables. Inferential statistics using Pearson correlation coefficient and Panel Least Square (PLS) regression analysis were applied to test the hypotheses of the study. The results revealed that that a significant and positive relationship exists between debt ratio and earnings per share (β1 = 0.427130; p-value = 0.0000); a significant and positive relationship between short term debt ratio and return on equity (β2 = 0.552358; p-value = 0.0000); a significant and positive relationship between long term debt ratio and cash value added (β3 = 0.204575; p-value = 0.0000). In conclusion, this study found that debt financing has a significant effect on shareholders wealth creation at 5% level of significance. The study recommended amongst others that firms should lever on the amount of debt they undertake to finance their undertakings, as it enhances firms’ bottom line. Also, that firms should operate with a capital structure mix that would minimize the cost of capital and maximize shareholders’ wealth; finally, government and/or lending institutions should design long term financing options suitable for firms such as credit and equity guarantees as well as industry-based credit facilities that will make long term credit not only available but also affordable.d.
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