The Effects of Financing Risk on the Value of Firm and Profitability: Evidence from Nigerian Commercial Banks

Olalere Oluwaseyi Ebenezer (), Md Aminul Islam (), Mohd Zukime Mat Junoh () and Wan Sallha Yusoff ()

Asian Economic and Financial Review, 2019, vol. 9, issue 7, 864-874

Abstract: This study is designed to address the critical issues of financing risk in the banking industry. The data from sixteen selected commercial banks’ audited financial reports from 2009 to 2015 was used, making up to 112 observations. The panel data approach was used in the study for the analytical models. The market-based and accounting-based measure was used to proxy firm performance while financing risk was proxied by the Short-term debt, Long-term debt and Total debt ratio. The controlled variables used in this study included bank size and the GDP growth rate. Based on the random effect analysis in the models, the TDE ratio and GDP had a negative significant effect on firm value, suggesting that improvement in the TDE and GDP would increase firm value. The LTD ratio had a positive significant effect on firm value. The STD, LTD and TDE all impacted negatively on the banks’ return on assets. This suggested that a decrease in STD, LTD and TDE would lead to an increase in banks’ return on asset. The STD, LTD and GDP had a negative and significant effect on the banks’ net interest margin. The firm size had no impact on either the firm value or profitability measure used in the study. It was observed that the GDP played an important role in the performance of the commercial banks in the study. Hence, this paper suggests that further study can explore the effects of firm characteristics on firm value by exploring non-financial firms and/or a cross-country study.

Keywords: Financing risk; Debt financing; Firm value; Profitability; Capital structure; Nigerian commercial banks. (search for similar items in EconPapers)
Date: 2019
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