Assessing the influence of debt discipline on the profitability of Nigerian manufacturing firms
-
DOIhttp://dx.doi.org/10.21511/imfi.23(1).2026.32
-
Article InfoVolume 23 2026, Issue #1, pp. 434-446
- 5 Views
-
1 Downloads
This work is licensed under a
Creative Commons Attribution 4.0 International License
Type of the article: Research Article
Abstract
Capital structure decisions in the Nigerian economy are vital and significantly influence the performance of manufacturing firms. This study investigates the effect of the debt-equity ratio on the financial outcomes of the following manufacturing companies: BUA Cement Plc, Dangote Cement Plc, Lafarge Africa Plc, and Flour Mills Nigeria Plc, all quoted on the Nigeria Exchange Group Ltd. during the period 2015–2024. Fixed-effect panel data regression analysis is used to determine the influence of short-term and long-term debts on profit (return on investment). The findings suggest that the negative relationship is strong and statistically significant between the financial performance (profitability) and the leverage ratios, such as short-term debt/net worth ( -0.042, p < 0.025), long-term debt/net worth ( -0.061, p < 0.009), and total debt/net worth ( -0.035, p < 0.025). Therefore, all the null hypotheses were rejected at the 5% level of significance. The model describes the variation in firm performance which is, on average, 39%. At the firm level, BUA Cement Plc experienced a deleveraging trend and the profitability of the firm was on the downwards trend while Flour Mills Plc, owing to its high leverage, was marginally affected in its profit performance. The conclusion is that effective control of capital structure is essential if a better return per naira is to be earned for the country’s manufacturing sector.
- Keywords
-
JEL Classification (Paper profile tab)G32, L60, C23, M21
-
References37
-
Tables7
-
Figures1
-
- Figure 1. Trend of ROA and total debt-to-equity ratios, 2015–2024
-
- Table 1. Debt-to-equity ratio and financial performance panel dataset (2015–2024)
- Table 2. Firm-level capital structure and performance (2015-2024): Descriptive statistics
- Table 3. Multicollinearity diagnostic results (VIF values)
- Table 4. Panel diagnostics
- Table 5. Panel model specification tests
- Table 6. Fixed-effects regression
- Table 7. Summary of hypothesis testing
-
- Abor, J. (2005). The effect of capital structure on profitability: An empirical analysis of listed firms in Ghana. Journal of Risk Finance, 6(5), 438-445.
- Adekoya, Y. F., & Oladimeji, J. A. (2023). The impact of capital structure on the profitability of financial institutions listed on the Nigerian Exchange Group. World Journal of Advanced Research and Reviews, 20(3), 2248-2265.
- Aja, I. (2025, February 27). Nestlé Nigeria reports 221.6 billion loss before tax in 2024, returns to profitability in Q4. Nairametrics.
- Akinninyi, P. E. (2025). Firm financial indicators and profitability of manufacturing firms in Nigeria. International Journal of Business and Management Review, 13(3), 11-36.
- Al-Najjar, B., & Taylor, P. (2008). The relationship between capital structure and ownership structure: New evidence from Jordanian panel data. Managerial Finance, 34(12), 919-933.
- Awhanjinu, J. (2025, February 28). Nestlé Nigeria battles profit slump as forex losses and inflation pummel margins.
- Ayange, A., Emmanuel, N. C., Rosemary, I. H., Ndudi, U. C., & Samuel, U. E. (2021). Effect of capital structure on firms’ performance in Nigeria. Universal Journal of Accounting and Finance, 9(1), 15-23.
- Berger, A. N., & Bonaccorsi di Patti, E. (2006). Capital structure and firm performance: A new approach to testing agency theory. Journal of Banking & Finance, 30(4), 1065-1102.
- Berzkalne, I., & Zelgalve, E. (2014). Return on equity and company characteristics: An empirical study of industries in Latvia. Proceedings of the International Scientific Conference, 94-103.
- Central Bank of Nigeria. (2023). Monetary policy communiqués and statistical bulletins. Central Bank of Nigeria.
- Ebaid, I. E. (2009). The impact of capital structure choice on firm performance: Empirical evidence from Egypt. The Journal of Risk Finance, 10(5), 477-487.
- Efemena, E. O., & Augustine, C. I. (2024). Debt financing and performance of manufacturing companies in Nigeria. International Journal of Scientific Research and Management, 12(12), 8064-8076.
- Ekokotu, R. N. (2025). Capital structure and performance of listed manufacturing firms in Nigeria. International Journal of Innovative Finance and Economics Research, 13(2), 43-62.
- Ezeoha, A. E. (2008). Firm size and corporate financial leverage choice in a developing economy: Evidence from Nigeria. The Journal of Risk Finance, 9(4), 351-364.
- Fosu, S. (2013). Capital structure, product market competition and firm performance: Evidence from South Africa. The Quarterly Review of Economics and Finance, 53(2), 140-151.
- International Monetary Fund. (2023). Global financial stability report: Safeguarding financial stability amid high inflation and geopolitical risks. International Monetary Fund.
- Kraus, A., & Litzenberger, R. H. (1973). A state-preference model of optimal financial leverage. The Journal of Finance, 28(4), 911-922.
- Modigliani, F., & Miller, M. H. (1958). The cost of capital, corporation finance and the theory of investment. American Economic Review, 48(3), 261-297.
- Mwiti, M. E., & Gitagia, F. (2023). Long-term debts and financial performance of manufacturing firms listed at Nairobi Securities Exchange, Kenya. International Academic Journal of Economics and Finance, 3(10), 267-278.
- Myers, S. C. (1977). Determinants of corporate borrowing. Journal of Financial Economics, 5(2), 147-175.
- Myers, S. C. (1984). The capital structure puzzle. The Journal of Finance, 39(3), 575-592.
- National Bureau of Statistics. (2024). Nigerian gross domestic product report and sectoral statistics. National Bureau of Statistics.
- Njoku, E. O., Ebringa, O. T., & Duru, E. E. (2025). Capital structure analysis and performance of listed manufacturing firms in Nigeria. International Review of Financial Studies, 2(3).
- Ogbuokiri, P. (2024, November 3). Harsh economy: 5 firms exit Nigeria as Nestlé records N255bn loss. New Telegraph.
- Ogebe, P., Ogebe, J., & Alewi, K. (2013). The impact of capital structure on firms’ performance in Nigeria. Journal of Business and Management, 3(5), 39-47.
- Olaoye, C. O., & Adesina, O. D. (2022). Capital structure and financial performance of manufacturing companies in Nigeria. Journal of Applied and Theoretical Social Sciences, 4(4), 1-20.
- Omodara, O. V. (2023). The dynamics of short-term debt ratio and firm performance: A comprehensive study of Nigerian manufacturing firms. Fuoye Journal of Accounting and Management, 6(2), 212-231.
- Orji, A., Nwadialor, E. O., & Agubata, N. (2021). Effect of debt financing on firms performance in Nigeria. Journal of Accounting and Financial Management, 7(3), 1-15.
- Rajan, R. G., & Zingales, L. (1995). What do we know about capital structure? Some evidence from international data. The Journal of Finance, 50(5), 1421-1460.
- Salawu, R. O. (2007). An empirical analysis of the capital structure of selected quoted companies in Nigeria. The International Journal of Business and Finance Research, 1(1), 16-29.
- Sambo, Y., & Onmonya, L. (2024). Debt financing and the profitability of listed manufacturing companies in Nigeria. Seybold Report, 19(9), 178-200.
- Sike, R. I., Ibrahim, U. A., & Maitala, F. (2022). Capital structure and firm performance: Empirical evidence from Nigeria listed non-financial firms. International Journal of Economics and Management Systems, 7(4), 45-59.
- Singh, A., & Bagga, T. (2019). Capital structure and firm performance: Empirical evidence from Indian manufacturing firms. International Journal of Management Studies, 6(3), 1-15.
- Tian, G. G., & Zeitun, R. (2007). Capital structure and corporate performance: Evidence from Jordan. Australasian Accounting Business and Finance Journal, 1(4), 40-61.
- Titman, S., & Wessels, R. (1988). The determinants of capital structure choice. The Journal of Finance, 43(1), 1-19.
- Uchenna, N., Anyanwu, N. A., Madubuike, K., & Anaenugwu, N. V. (2025). External debt sustainability and economic growth nexus in Nigeria: A co-integration and causality analysis. ESUT Journal of Social Sciences, 10(1).
- World Bank. (2023). Global economic prospects. World Bank.


