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

TABLE OF CONTENTS

Title Page

Declaration

Approval Page

Dedication

Acknowledgments

Abstract

Table of Contents

List of Tables

List of Figures

Chapter One: Introduction

1.1       Background of the Study

1.2       Statement of the Problem

1.3       Objectives of the Study

1.4       Research Questions

1.7       Scope of the Study

1.6       Hypotheses of the Study

1.7       Significance of the Study

            References

Chapter Two: Review of Related Literature

2.1       Conceptual Framework

2.2       Theoretical Review

2.2.1    Financial System and Economic Development

2.2.2    The Nigerian Stock Exchange

2.2.3    The Financing Decision of the Firm

2.2.4    The Concept of the Firm’s Financing Structure

2.2.5    Trade–Off Theory

2.2.6    The Pecking Order Theory

2.2.7    The Agency Cost Theory

2.2.8    Overview of the Modigliani and Miller Theorem

2.3       Empirical Review

2.3.1    Capital Structure of Firms

2.3.2    Capital Structure and Firm Growth

2.3.3    Determinant of Capital Structure

2.3.4    Financing Choices of Firms

2.3.5    Capital Structure, Small and Medium Scale Enterprises

2.3.6    Capital Structure of Real Estate Firms

2.3.7    Capital Structure and Textile Firms

2.3.8    Capital Structure and Firm Ownership

2.2.9    External Financing and Access to Finance

2.3.10  Determinant of Stock Returns

2.3       Review Summary

            References

Chapter Three: Research Methodology

3.1       Research Design

3.2       Sources of Data

3.3       Population and Sample Size

3.4       Explanation of Research Variables

3.4.1    Independent Variable

3.4.2    Dependent Variables

3.4.3    Control Variable

3.5       Model Specification

3.6       Techniques of Analysis

            References

Chapter Four: Presentation and Analysis of Data

4.1       Data Presentation and Interpretation

4.2       Test of Hypotheses

4.3       Implications of Results

            References

Chapter Five: Summary of Findings, Conclusion and Recommendations

5.1       Summary of Findings

5.2       Conclusion

5.3       Recommendations

5.4       Contributions to Knowledge

5.5       Recommendation for Further Studies

            Bibliography

            Appendix 1     Ratio Values of Model Proxies

            Appendix 2     Quantum Values of Model Proxies

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.

CHAPTER ONE

INTRODUCTION

1.1              Background to the study

In most developing economies like Nigeria, the financing policies of firms may become relevant because managers in a company invest in new plants and equipments to generate additional revenue and income. While the revenue belongs to the owners of the company and can be distributed as either dividend paid to owners or retained in the firm as retained earnings, the retained earnings could be used for a new investment or capitalized by using it to issue bonus shares. But where the retained earnings are not enough to support all profitable investment opportunities, the company may forgo the investment or raise additional capital, thus altering the financial structure of firms (Olugbenga, 2012).

According to Pandey (2005) the financial structure of a firm is a long term plan, set up as trade-off among conflicting interests and identified as the major function of a corporate manager. They determine the appropriate combination or mix of equity and debt in order to maximize firm value. This major function of corporate managers has generated so much debate along the following line; the relationship between leverage and profitability; the optimal mix between equity and debt and the determinants of corporate financial structure. The underlining assumption of these debates is to effectively understand the factors that influence the financing behaviour of firms.

In order to explain and/or understand the financing behaviour of corporate managers, so many theories have emerged. The earliest is the neoclassical view of finance dominated by the Miller-Modigliani theorem, also known as the capital structure irrelevance theory (Miller and Modigliani 1958), according to the theorem, given the assumption that “firms and investors have the same financial opportunities, under conditions of perfectly competitive financial markets, no asymmetries of information between different agents and the same tax treatment of different forms of finance, the corporate financial policy is irrelevant. The theory establishes that, the stock market valuation of a firm is based exclusively on the earning prospects of the firm and not on its finance structure. In effect, internal and external finance are viewed as substitutes and......

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