Debt financing and the profitability of listed manufacturing companies in Nigeria

Abstract In light of the considerable role that debts currently play in building large organizations' financial structures, the concept of debt financing has become much more prevalent in recent years. The debt finance literature makes a strong case for the relationship between debt financing and profitability, suggesting that the two may be related. This study evaluates the effect of debt financing on profitability of listed manufacturing companies in Nigeria. The sample of the study comprised of 37 listed manufacturing companies in Nigeria. The study's data was gathered from annual reports and financial statements that had been submitted in to Nigeria Exchange Limited over a ten-year period (2013–2022). Results showed that Long Term Debt to Total Asset ratio, Total Debt to Total Equity ratio and firm size had a significant impact on Return on Equity of listed manufacturing companies in Nigeria. However, Current Ratio and Total Debt to Total Equity returned insignificant effects on Return on Equity of listed manufacturing companies in Nigeria. The study recommended that in making a decision on what the composition of their debt financing will be, management of listed manufacturing companies in Nigeria should assess critically and make comparison between the cost of obtaining a particular source of debt and the benefit that can be derived from it. This will help managers ensure that there will be a positive impact on their profitability. Keywords: Debt financing, Return on equity, Manufacturing companies