Effects of Debt Financing on Financial Performance of Listed Consumer Goods Firms in Nigeria

Abstract

There has been yearning among academics, government, financial institutions regulators and global institutions as to whether debt influences the financial performance of an organization. Studies on the relationship between various financing decisions and performance have produced mixed results. Therefore, this study seeks to examine the effects of debt financing on financial performance of listed consumer goods firms in Nigeria from 2011-2020. The dependent variable of this study is financial performance measured by net profit margin (NPM), while the independent variable is short term debt (STD) and two control variables were used- Firm size and firm age. Secondary data on financial performance as well as the short-term debt were obtained from the annual financial reports of 15 purposeful sampled consumer goods firms and the Nigerian Exchange Fact Book. The study adopted panel data regression approach for analysis which gives room for adoption between fixed effect and random effect through the help of hausman test of the relationship between the variables. The study concluded that there is a negative and significant relationship between short term debt and net profit margin. It is therefore recommended that management of listed firms should consider other performance indices rather than debt financing, which can ultimately enhance better performance.