The Effect of Debt Financing on Firm Value: A Panel Data Approach

Abstract

The study examines the effect of debt financing on firm value of listed Nigerian companies using panel data analysis for the period 2008 to 2017. The population of the study consists of 300 firmyear observations. The data for this study were sourced from the annual accounts and reports of the companies within the period of the study. Using EV/EBITDA ratio as a proxy for firm value, the study found an insignificant effect of the short-term debt to total assets ratio on firm value. But, the ratio of long-term debt to total assets, total debt to total assets and total debt to total equity have positive effect on firm value. While board size and firm growth have no significant effect on firm value, firm size was found to have a negative effect on firm value. Thus, the study concluded that capital structure influences the firm value of listed firms in Nigeria. The study recommends making use of more debt to reduce agency costs of equity, minimize the problem of information asymmetry and increases investors' confidence to boost firm value.