IMPACT OF EXTERNAL FINANCING ON FIRM PERFORMANCE EVIDENCE FROM NIGERIA QUOTED MANUFACTURING FIRMS, 1999-2012

IMPACT OF EXTERNAL FINANCING ON FIRM PERFORMANCE EVIDENCE FROM NIGERIA QUOTED MANUFACTURING FIRMS, 1999-2012

ABSTRACT

The use of external financing can be described as a balancing act between higher returns for shareholders versus higher risk to shareholders. Though external financing can boost stock performance of firms, it is still inconclusive as to its impact on performance of firms in developing economies like Nigeria. It is, therefore, against this background that this study investigated the impact of external financing on earnings per share; pay-out ratio; dividend per share; return on assets and return on equity of Nigerian manufacturing firms. The study adopted the ex-post facto research design. Panel data were collated from the Annual financial Statement of Quoted Manufacturing firms as well as from the Nigerian Stock Exchange Factbook for the period 1999 – 2012. Five (5) hypotheses which state that External Financing does not have positive and significant impact on earnings per share; payout ratio; dividend per share; return on assets and return on equity of Nigerian manufacturing firms were tested using the Ordinary Least Square (OLS) regression technique. The independent variable was External Finance while the dependent variables were earnings per share (EPS), payout ratio (PR), dividend per share (DPS), return on assets (ROA) and return on equity (ROE).  The result of this study revealed that External Financing had negative and non-significant impact on earnings per share, payout ratio, dividend per share and return on equity while its impact on return on assets was found to be positive and significant. The implications of the finding reveal that in Nigeria, External Financing does not magnify earnings attributable to shareholders in terms of the book value measures. However, it increases the asset structure of these firms. This study therefore recommends, among others, that Nigerian manufacturing firms should utilize more External Financing in their capital structure up to the optimal level to leverage on the magnifying effect of external financing on shareholder’s wealth.