Assessing the influence of debt discipline on the profitability of Nigerian manufacturing firms

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Type of the article: Research ArticleAbstractCapital 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.

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