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Vol. 6 No. 2 (2024): Research Journal of Financial Sustainability Reporting (RJFSR)

Corporate Financing Sources and Financial Performance of Oil and Gas Firms in Nigeria

Submitted
October 12, 2024
Published
2024-10-12

Abstract

Research Objective: The study aimed to assess the relationship between corporate financing sources and financial performance of oil and gas firms in Nigeria from 2014 to 2023. Specifically, it sought to examine the effect of total equity, short-term debt, and long-term debt on profit for the year of selected oil and gas firms.

Methodology: The study adopted an ex-post facto research design and utilised secondary data obtained from the annual reports of Conoil Plc, Total Nigeria Limited, and Oando Plc. Multiple regression analysis was conducted using the Panel Least Squares method to determine the effects of total equity, short-term debt, and long-term debt on profit for the year.

Findings:

  1. Total equity had a negative and non-significant effect on profit for the year (coefficient = -0.282573, P-value = 0.1452), suggesting that higher equity did not contribute significantly to profitability.
  2. Short-term debt had a positive and significant effect on profit for the year (coefficient = 0.498277, P-value = 0.0013), indicating that short-term debt improved financial performance.
  3. Long-term debt also had a positive and significant effect on profit for the year (coefficient = 0.562447, P-value = 0.0008), showing that long-term debt was a key driver of profitability.
  4. The Adjusted R-squared value of 62% suggests that the model explains a substantial proportion of the variance in profit for the year.

Conclusion: The study concludes that short-term and long-term debt positively influence the financial performance of oil and gas firms in Nigeria, while total equity does not significantly impact profitability.

Recommendations:

  1. Equity Management: Oil and gas firms in Nigeria should explore strategies to improve total equity, as it represents shareholder investment, even though the study found it had a non-significant effect on profitability. Effective equity management may enhance financial performance in the long term.
  2. Short-Term Debt: Firms should prioritise maintaining short-term debt sustainability, considering environmental, social, and governance (ESG) factors, to ensure financing decisions support long-term profitability and maintain the firm's social licence to operate.
  3. Profit Retention: Corporate bodies should establish policies that ensure a high percentage of net profit is retained for reinvestment purposes, given the significant impact of short-term debt on profitability. Retained earnings can support future investments and reduce the need for external borrowing.

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