Effect of Firm Size on Corporate Borrowing of Oil and Gas Firms in Nigeria

Abstract

The purpose of the research was to investigate to what extent the size of a firm in Nigeria oil and gas industry affects the magnitude of external borrowings. The study went further to examine the relationship between firm size and financial leverage in the same industry; as well as the causal relationship among the variables under study. Simple regression model was formulated to guide the analysis. The analysis of the time series data reveals that financial leverage is significantly but negatively affected by firm size in the industry. This implies that as firms increase in total assets, the firms tend to play down on sourcing for fund through external borrowing. The outcome is in line with some previous studies and in accordance with the theoretical framework of the study. There is no causality running from either Firm Size to Financial Leverage or otherwise, at 2 years lagged period; which implies that Financial Leverage does not granger cause Firm Size and vice versa. A negative relationship was revealed between firm size and financial leverage; though very insignificant; which implies that firm size and financial leverage change/increase in opposite direction in oil and gas industry. Therefore, firms at growth age, with a growing asset base, will need external borrowing more than a firm at mature or declining age with huge asset base and accumulated retained earnings.

Firm Financial Characteristics and Leverage of Listed Commercial and Allied Companies in Nairobi Securities Exchanges

“…The ability to borrow is anchored on an organization to raise required collateral security, cash flow, profitability, firm size, among others (Hussan, 2016). There has not been any consensus on the influence of firm financial characteristics on leverage since some have a positive, negative, significant and non-significant influence on leverage (Hussan, 2016; Kayo & Kimura, 2016). Moreover, most studies have been considering all listed companies in the absence of time-invariant characteristics and specific risk considerations that vary from listing sectors.Finance theoretical arguments have not been conclusive on the optimal mix of debt.…”