DETERMINANTS OF MANUFACTURING FIRMS’ FINANCIAL PERFORMANCE IN NIGERIA

DETERMINANTS OF MANUFACTURING FIRMS’ FINANCIAL PERFORMANCE IN NIGERIA

ABSTRACT

This study empirically examined the determinants of manufacturing firms’ financial performance in Nigeria using a panel data for 12 years across 10 manufacturing firms listed on the Nigerian Stock Exchange for the period 2004 to 2015. The effect of revenue reserves, interest paid on borrowings and tax paid were examined on net worth, profit after tax and return on asset.

The data was analyzed using descriptive and inferential analysis. The study was based on the microeconomic theory of production. The hausman test was used to determine the appropriateness of the fixed effect and random effect estimators that were employed. A robust check was carried out on the effect of borrowings.

The results revealed that the mean profit after tax, net worth and return on asset was N11,800,000,000, N67,200,000,000 and 10.441% respectively. From the panel regression estimates, revenue reserve had insignificant effect on net worth, profit after tax and return on asset. Tax paid had a negative significant effect on the net worth and profit after tax of manufacturing firms. However it had no significant effect on return on asset. The amount of borrowings had a positive significant effect on profit after tax and net worth of manufacturing firms. However, its effect on return on asset was insignificant. Interest paid on borrowings was not a significant determinant.

The study concluded that the high tax paid by the manufacturing firms significantly explain declines in their financial performance. The amount of borrowings available to manufacturing firms determines improvements in their financial performance. Tax reductions and subsidies as well as greater access to borrowings are important for improving the financial performance of manufacturing firms.

Keywords: Financial performance, Manufacturing firms, Tax and Borrowings.