Debt Financing and Firm Financial Performance: Evidence from Non-Financial Sector of Nigeria

Obtaining an optimal mix of debt and equity that will significantly improve firm performance has been challenging. This study seeks to examine the effect of debt financing on the financial performance of firms in the non-financial sector of Nigeria. A total of 74 listed firms were drawn for the period of 9 years, between 2012 and 2020. The study employed two-step system generalized method of moment (GMM) as the method of analysis. The findings of the study indicated that long-term debt and short-term debt reveal a significant and negative association with the performance of firms. Moreover, firm size was found to be significantly positive in influencing firm performance. The study recommends the stakeholders in the industry to keep low debt composition in the capital structure due to its negative influence on the firms’ performance. Moreover, the firms should place more emphasis on equity financing source due to its reliability and affordability.