Is Debt A Blessing Or A Curse? An Empirical Analysis of

Some Nigeria Firm

AKANDE J.O.

Department of Accounting

University of Jos, Jos, Plateau State, Nigeria.

E-mail: akande_joseph@yahoo.com

ABSTRACT

Globally, plethora of empirical evidences by researchers has attempted to corroborate the theoretical underpinning of capital structure with respect to debt financing. While this has continued to be a burden, this work aimed at answering the question of whether increasing the debt proportion of firm will increase it fortune or otherwise. Ordinary Least Square (OLS) regression analysis was employed using panel data to analyse the data collected from the financial statements of ten (10) Nigeria firms over 20 years (1991 – 2010). ROA, ROE, EPS and DPS on the one hand and DC on the other hand, were surrogated for firms’ performance and debt financing respectively. From the regression analysis we found that there is a positive relationship between DC and ROE, EPS, DPS; while a negative relationship exists between DC and ROA. Hence we conclude that the proportion of debt finance contained in the capital structure of a firm will considerably impact on its performance. Thus, the recommendation among others is that Nigeria government should see to the review of the cost of making credit available to businesses in order to reduce the cost of debt financing so as to encourage firms further borrow to finance their positive NPV projects as predicted by the M-M proportion II theory.