ABSTRACT
The study therefore examined the
determinants of debt maturity in selected Nigerian firms. The study evaluated
the determinants of debt maturity of selected firms in Nigeria using the
following variable: independent variables; firm size, firm leverage, firm’s
asset maturity and firm credit quality and dependent variable debt maturity.
The study is set out to: ascertain the nature of relationship between firm’s size (x1) and debt maturity (Y); establish
the nature of relationship between the firm’s leverage (x2) and debt
maturity (Y); establish the nature of relationship between firm’s asset
maturity (x3) and debt maturity (Y); establish the nature of
relationship between firm’s credit quality (x4 ) and debt maturity
(Y). The study utilised secondary data. Given the nature of the objectives and
hypotheses of the research, the data were extracted from the published report
of some quoted firms’ annual reports. The period for the study was 2007 – 2011.
The population of the study was 241 firms quoted in Nigeria stock exchange as
at 2011, while the sample size, using purposive sample size, were eight (8)
firms. Correlation coefficient technique and coefficient of multiple
determinations (R – Square), were used to analyze the objectives while t_
statistics was used for statistical significance. Result from the regression
equations showed that the coefficients of firm’s size and firm’s asset maturity
have a positive impact on the dependent variable debt maturity with values
0.065 and 0.559 respectively; also, firm’s leverage and firm’s credit quality
have negative impact on the dependent variable debt maturity with values -0.414
and -0.112 respectively. The R – Square of the independent variables with the
dependent variable is 0.441. This shows a positive relationship between
independent variable with the dependent variable. However, the t_ statistical
test for firm’s size has significant impact on debt maturity (t1 =
0.368 < 2.132), that of firm’s leverage has no significant impact on Y (t2
= -2.417<2.132). The statistical coefficient of firm’ s asset maturity has a
significant impact on debt maturity (t3 = 4.080 >2.132), and that
of firm’s credit quality has no significant impact on debt maturity (t2
= -0.057 < 2.132).
We concluded that firm’s asset
maturity is the only significant variable in forecasting the debt maturity,
(Y), therefore recommend that firms in Nigeria should use asset maturity as a proxy
in the determination of their debt maturity.
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
Capital structure refers to the
mix of long-term sources of funds, such as debentures, long-term debt,
preference share capital and equity share capital including reserves and
surpluses (i.e. retained earnings). Some firms do not plan their capital
structure, and it develops as a result of the financial decisions taking by the
financial manager without formal planning. These firms may prosper in
short-run, but ultimately they may face considerable difficulties in raising
funds to finance their activities. With unplanned capital structure these firms
may also fail to economise their capital structure to maximize the use of the
funds and to be able to adapt more easily to the changing conditions.
The technique of cash flow
analysis is helpful in determining the firms debt capacity. Debt capacity is
the amount which a firm can service easily even under adverse condition; it is
the amount that the firm should employ. There may be lender who is prepared to
lend to firm, but firm should borrow only if it can service debt without any
problem. A firm can avoid the risk of financial distress if it maintains its
ability to meet contractual obligation of interest and principal payment.
However, every firm has to choose
what source of financing to use in making its decision. It should choose
between debt and equity or both. Majority of Nigerian firms have not enough
resources for their growth. This is why it is necessary for them to issue debt. In the
conditions of macroeconomic uncertainty, it is necessary for firms to choose
optimal sources of financing, because they have to support their stability and
use capital more efficiently than their competitors.
Furthermore, a firm’s choice of
debt maturity is an integral part of its capital decision. Firms which select
an inappropriate maturity structure of payments risk serious financial
difficulty. For example, a firm which finances new project with debt of short
maturity, risks an unwanted rise in borrowing costs or even liquidation when
credit conditions deteriorate. Likewise, firms which finance new projects with
debt of long maturity may have unnecessarily high borrowing costs.
Motivated by the potentially large
impact that inappropriate debt maturity choice can have on firm’s financial
condition, we documented the determination of the debt maturity using eight (8)
firms in Nigeria between 2007 and 2011. We used purposive sample size. It is
our hope that a better understanding of the determinants of debt maturity can
help financial expert build and refine model to guide corporate decision makers
to face the debt maturity choices. Our empirical tests were based on the
existing models.
1.2 STATEMENT OF PROBLEM
Despite the importance of the debt
maturity choice, financial economists have been largely silent about what
actually affects firm’s ability and desire to borrow for different periods of
time. Barclay (1995) shows that firms with high growth opportunities have less
long term debt, they also found out that larger firms with good crediting
ratings have more of long term debt. Barclay and Smith’s results support Myer’s
(1977) view that firms with high potential agency costs of debt borrow more. Morris (1991)
examines 140 companies in 1985, and found that the weighted average maturity of
debt obligations is positively related to firm size, financial leverage,
liquidity and asset maturity. He argues that firms match maturity in order to
avoid the cost of financial distress which arises when refunding shorter term
debt obligations. Titman and Wessels (1988) found that smaller firms are likely
to issue short term debt.
These unresolved issues
necessitate a detailed investigation of the determinant of debt maturity in
selected Nigerian firms. No doubt a resolution and understanding of the detail
would assist companies in planning their capital structure for optimal results.
1.3 OBJECTIVES OF THE STUDY
Cooper and Emory (1995) remark
that research objective addresses the purposes of investigation. The general
objective of the study identify is to the determinant of debt maturity. The
specific objectives of the study are as follows:
1
To
ascertain the relationship between firm’s size and debt maturity.
2
To
determine the relationship between firm’s leverage and debt maturity.
3
To
establish the relationship between firm’s asset maturity and debt maturity.
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Item Type: Postgraduate Material | Attribute: 89 pages | Chapters: 1-5
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