IDEAS home Printed from https://ideas.repec.org/a/bcp/journl/v8y2024i8p3384-3401.html

Financing Decisions and Financial Stability: Moderating Effect of Firm Size of Listed Industrial Goods Firms in Nigeria

Author

Listed:
  • Edidiong Justine John.

    (Department of Accounting, Faculty of Management Sciences, Akwa Ibom state university, Obio Akpa Campus, Akwa Ibom state)

  • Samson Aluya

    (Department of Accountancy, Faculty of Management Sciences, Ignatius Ajuru University of Education, Rumuolumeni, Port Harcourt, Rivers State)

  • Michael Ogbuigwe

    (Department of Accountancy, Faculty of Management Sciences, Ignatius Ajuru University of Education, Rumuolumeni, Port Harcourt, Rivers State)

Abstract

The ability to make savvy financing decisions is now a key differentiator for corporate firms seeking to outpace competition and achieve sustainable growth. In view of this, this study examined the moderating effect of firm size on the nexus between financing decisions and financial stability of listed industrial goods firms in Nigeria. The study employed Altman’s Z-score in evaluating the financial stability of listed industrial goods firms in Nigeria and a combination of debt-equity ratio, interest coverage ratio, and total debt ratio as key predictors. Altman’s Z-score assisted in gauging firms’ financial stability over the research period. Additionally, the natural logarithm of total assets was integrated into the analysis to further refine the predictive model and to achieve the study objectives. The study adopted an ex-post facto research design and utilized a panel data of one hundred and fifty (150) pooled observations gathered across a sample of ten (10) listed industrial goods firms in Nigeria over a period of fifteen (15) years (2009-2023). The study employed descriptive statistics tools, Pearson correlation analysis and Fixed effects regression technique via Eviews 10.0 statistical package in analyzing the data. The study findings revealed that with the moderating effect of firm size, debt equity ratio has an insignificant negative relationship {(Coeff. = -0.000247 (0.6571)} with financial stability of listed industrial goods firms in Nigeria while interest coverage ratio has a significant positive relationship {Coeff. = 2.322405 (0.0173)} with financial stability of listed industrial goods firms in Nigeria. It also revealed that total-debt ratio has an insignificant negative relationship {Coeff. = -0.002365 (0.4236)} with financial stability of listed industrial goods firms in Nigeria. It was thus concluded that firm size has a significant moderating effect on the relationship between financing decisions and financial stability of listed industrial goods firms in Nigeria. The study recommended, amongst others, that firms should consider their size when making financing decisions and adjust their strategies accordingly for enhanced financial stability, growth prospects, and overall success.

Suggested Citation

  • Edidiong Justine John. & Samson Aluya & Michael Ogbuigwe, 2024. "Financing Decisions and Financial Stability: Moderating Effect of Firm Size of Listed Industrial Goods Firms in Nigeria," International Journal of Research and Innovation in Social Science, International Journal of Research and Innovation in Social Science (IJRISS), vol. 8(8), pages 3384-3401, August.
    • Handle: RePEc:bcp:journl:v:8:y:2024:i:8:p:3384-3401
    as

    Download full text from publisher

    File URL: https://www.rsisinternational.org/journals/ijriss/Digital-Library/volume-8-issue-8/3384-3401.pdf
    Download Restriction: no
    File URL: https://rsisinternational.org/journals/ijriss/articles/financing-decisions-and-financial-stability-moderating-effect-of-firm-size-of-listed-industrial-goods-firms-in-nigeria/
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Myers, Stewart C. & Majluf, Nicholas S., 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Journal of Financial Economics, Elsevier, vol. 13(2), pages 187-221, June.
    2. Harris, Milton & Raviv, Artur, 1991. "The Theory of Capital Structure," Journal of Finance, American Finance Association, vol. 46(1), pages 297-355, March.
    3. Murray Z. Frank & Vidhan K. Goyal, 2009. "Capital Structure Decisions: Which Factors Are Reliably Important?," Financial Management, Financial Management Association International, vol. 38(1), pages 1-37, March.
    4. Eugene F. Fama, 2002. "Testing Trade-Off and Pecking Order Predictions About Dividends and Debt," The Review of Financial Studies, Society for Financial Studies, vol. 15(1), pages 1-33, March.
    5. Jensen, Michael C. & Meckling, William H., 2008. "Theory of the firm: managerial behavior, agency costs and ownership structure," RAE - Revista de Administração de Empresas, FGV-EAESP Escola de Administração de Empresas de São Paulo (Brazil), vol. 48(2), April.
    6. Malcolm Baker & Jeffrey Wurgler, 2002. "Market Timing and Capital Structure," Journal of Finance, American Finance Association, vol. 57(1), pages 1-32, February.
    7. Kraus, Alan & Litzenberger, Robert H, 1973. "A State-Preference Model of Optimal Financial Leverage," Journal of Finance, American Finance Association, vol. 28(4), pages 911-922, September.
    8. Krishna Dayal Pandey & Tarak Nath Sahu, 2019. "Debt Financing, Agency Cost and Firm Performance: Evidence from India," Vision, , vol. 23(3), pages 267-274, September.
    9. Sanjeev Bhojraj & Partha Sengupta, 2003. "Effect of Corporate Governance on Bond Ratings and Yields: The Role of Institutional Investors and Outside Directors," The Journal of Business, University of Chicago Press, vol. 76(3), pages 455-476, July.
    10. Edward I. Altman, 1968. "Financial Ratios, Discriminant Analysis And The Prediction Of Corporate Bankruptcy," Journal of Finance, American Finance Association, vol. 23(4), pages 589-609, September.
    11. Josphat Karanja Mwangi & Dr. Eddie Simiyu, 2024. "Financial Management Practices and Financial Sustainability in Mission Hospitals, Kiambu County, Kenya," International Journal of Finance and Accounting, IPRJB, vol. 9(3), pages 11-36.
    12. Edward I. Altman, 1968. "The Prediction Of Corporate Bankruptcy: A Discriminant Analysis," Journal of Finance, American Finance Association, vol. 23(1), pages 193-194, March.
    13. Sreedhar T. Bharath & Tyler Shumway, 2008. "Forecasting Default with the Merton Distance to Default Model," The Review of Financial Studies, Society for Financial Studies, vol. 21(3), pages 1339-1369, May.
    14. Darren J. Kisgen, 2006. "Credit Ratings and Capital Structure," Journal of Finance, American Finance Association, vol. 61(3), pages 1035-1072, June.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Elsas, Ralf & Florysiak, David, 2008. "Empirical Capital Structure Research: New Ideas, Recent Evidence, and Methodological Issues," Discussion Papers in Business Administration 4743, University of Munich, Munich School of Management.
    2. Shoaib Ali & Attiya Yasmin Javid, 2015. "Relationship between Credit Rating, Capital Structure and Earning Management Behaviour: Evidence from Pakistani Listed Firms," PIDE-Working Papers 2015:121, Pakistan Institute of Development Economics.
    3. Yildirim, Ramazan & Masih, Mansur & Bacha, Obiyathulla Ismath, 2018. "Determinants of capital structure: evidence from Shari'ah compliant and non-compliant firms," Pacific-Basin Finance Journal, Elsevier, vol. 51(C), pages 198-219.
    4. Alessandra Amendola & Marinella Boccia & Gianluca Mele & Luca Sensini, 2020. "Tax Policy and Firms' Financial Choices: Empirical Evidence from the Dominican Republic," MIC 2020: The 20th Management International Conference,, University of Primorska Press.
    5. Rehman, Obaid Ur & Wu, Kai & Liu, Jia, 2024. "COVID-19 exposure, financial flexibility, and corporate leverage adjustment," International Review of Economics & Finance, Elsevier, vol. 96(PB).
    6. Dang, Viet Anh, 2013. "An empirical analysis of zero-leverage firms: New evidence from the UK," International Review of Financial Analysis, Elsevier, vol. 30(C), pages 189-202.
    7. Im, Hyun Joong & Kang, Ya & Shon, Janghoon, 2020. "How does uncertainty influence target capital structure?," Journal of Corporate Finance, Elsevier, vol. 64(C).
    8. Viet Anh Dang, 2013. "Testing capital structure theories using error correction models: evidence from the UK, France and Germany," Applied Economics, Taylor & Francis Journals, vol. 45(2), pages 171-190, January.
    9. Xu, Jin, 2012. "Profitability and capital structure: Evidence from import penetration," Journal of Financial Economics, Elsevier, vol. 106(2), pages 427-446.
    10. Shoaib Khan & Usman Bashir & Hend Abdulhadi Saleh Attuwaijri & Usman Khalid, 2023. "The Capital Structure Decisions of Banks: An Evidence From MENA Region," SAGE Open, , vol. 13(4), pages 21582440231, December.
    11. Lee, Lillian & Chowdhury, Anup & Shubita, Moade, 2023. "Impact of Paris Agreement on financing strategy: Evidence from global FPSO industry," Technological Forecasting and Social Change, Elsevier, vol. 188(C).
    12. Hong-Yi Chen & Cheng Few Lee & Tzu Tai, 2020. "The Joint Determinants of Capital Structure and Stock Rate of Return: A LISREL Model Approach," World Scientific Book Chapters, in: Cheng Few Lee & John C Lee (ed.), HANDBOOK OF FINANCIAL ECONOMETRICS, MATHEMATICS, STATISTICS, AND MACHINE LEARNING, chapter 35, pages 1345-1397, World Scientific Publishing Co. Pte. Ltd..
    13. Amini, Shahram & Elmore, Ryan & Öztekin, Özde & Strauss, Jack, 2021. "Can machines learn capital structure dynamics?," Journal of Corporate Finance, Elsevier, vol. 70(C).
    14. Helmut Wasserbacher & Martin Spindler, 2024. "Credit Ratings: Heterogeneous Effect on Capital Structure," Papers 2406.18936, arXiv.org.
    15. Kanwal Iqbal Khan & Faisal Qadeer & Mário Nuno Mata & José Chavaglia Neto & Qurat ul An Sabir & Jéssica Nunes Martins & José António Filipe, 2021. "Core Predictors of Debt Specialization: A New Insight to Optimal Capital Structure," Mathematics, MDPI, vol. 9(9), pages 1-25, April.
    16. Viet Anh Dang, 2011. "Testing Capital Structure Theories Using Error Correction Models: Evidence From The Uk, France And Germany," Post-Print hal-00732527, HAL.
    17. Huang, Kershen & Petkevich, Alex, 2016. "Corporate bond pricing and ownership heterogeneity," Journal of Corporate Finance, Elsevier, vol. 36(C), pages 54-74.
    18. Alexandridis, George & Antypas, Nikolaos & Gulnur, Arman & Visvikis, Ilias, 2020. "Corporate financial leverage and M&As choices: Evidence from the shipping industry," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 133(C).
    19. Hess, Dieter & Immenkötter, Philipp, 2014. "How much is too much? Debt capacity and financial flexibility," CFR Working Papers 14-03, University of Cologne, Centre for Financial Research (CFR).
    20. de Jong, Abe & Verbeek, Marno & Verwijmeren, Patrick, 2011. "Firms' debt-equity decisions when the static tradeoff theory and the pecking order theory disagree," Journal of Banking & Finance, Elsevier, vol. 35(5), pages 1303-1314, May.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bcp:journl:v:8:y:2024:i:8:p:3384-3401. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Dr. Pawan Verma (email available below). General contact details of provider: https://rsisinternational.org/journals/ijriss/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.