Effect of Debt Financing on Firm Value of Listed ICT Firms in Nigeria Exchange Group (NGX)

Abstract

The study investigated effect of debt financing on the firm value of listed ICT firms in Nigeria Exchange Group (NGX). The specific objectives of the study were to examine effect of debt ratio, debt to equity ratio, and debt-to-capital ratio on firm value of listed ICT firms in Nigeria. The study adopted ex-post facto research design and secondary data were extracted from the annual reports of sampled ICT firms in Nigeria for the period 2013 – 2022. The panel regression analysis was used for data analysis. Findings showed that, the debt ratio demonstrated a statistically non-significant negative effect on market capitalization, evidenced by a p-value of 0.2643 and a t-statistic of -1.131372. In contrast, the debt-to-equity ratio exhibited a statistically significant positive effect on market capitalization, supported by a p-value of 0.0000 and a t-statistic of 5.157177. Similarly, the debt-to-capital ratio demonstrated a statistically significant positive effect on market capitalization, with a p-value of 0.0153 and a t-statistic of 2.527323. These results imply that a balanced mix of debt and equity in the capital structure contributes to higher firm value. The study therefore concluded that debt financing has a significant effect on firm value of ICT firms in Nigeria.The study recommends that Nigerian ICT firms, recognizing the non-significant negative impact on market capitalization attributed to the debt ratio, critically assess their debt levels for alignment with industry standards and investor expectations. Emphasizing the significant positive effect on market capitalization associated with the debt-to-equity ratio, it suggests strategic management of this ratio, utilizing debt for growth while transparently communicating its benefits to investors. Additionally, the study encourages ICT firms to explore a balanced debt-to-capital structure, recognizing the potential benefits of a strategic mix of debt and equity. Prudent debt management is emphasized to mitigate risks and ensure sustained enhancement of firm value in the dynamic Nigerian ICT sector.