Research Article

FIRM-SPECIFIC DETERMINANTS OF FINANCE LEASE OF LISTED NON-FINANCIAL FIRMS IN NIGERIA

Musa-Mubi, Aliya1*, Mohammed Lawal2
1 Department of Accounting, Ahmadu Bello University, Zaria
2 Department of Accounting, Ahmadu Bello University, Zaria Kaduna State, Nigeria
* Corresponding author: aliyam.mubi@yahoo.com
Published: Dec, 2016
Pages: 20-43
Views: 141
Downloads: 65

Abstract

Leasing as a source of financing investments in tangible assets has made significant contribution to capital formation of firms in the Nigerian economy over the years. However, the lease finance industry in Nigeria as a whole, seeks growth in conformity with the levels obtainable in developed economies. In spite of theoretical expositions on capital structure which extensively acknowledged the nature and use of finance leasing in corporate entities, lease financing in the Nigerian context appears to be largely biased towards MSMEs giving cause for inference of itsnon-prominencein Nigeria’s corporate sector, especially among creditworthy listed firms who have access to alternative finance through both the capital and money market. The body of existing literature from developed economies has documented a number of factors responsible for firms’ disposition towards the use of finance lease as an instrument of assets financing, however, not much evidence has been documented in this regard in the Nigerian context. Given the dearth of empirical studies in Nigeria and the inconsistencies in findings of foreign researches on the subject matter, this study examined the firm-specific factors that influence use of finance lease by Nigerian firms. A sample of 14 listed non-financial firms on the Nigerian Stock Exchange with finance lease obligationson their books were studied over the period 2007-2015 with a view to establishing the significance of profitability, growth opportunities, information asymmetry, risk of financial distress, agency cost and leverage in use of finance lease by firms. Consideration was likewise given to the possibility of past use of lease financing influencing the present use. After controlling for the adoption of IFRS, a Bootstrap-based Fixed-effects regression was run. The study found the use of lease financing by firms to be significantly and negatively influenced by leverage confirming the lease-debt substitutability proposition in the literature. Additionally, with alternative finance sources available, firms with a past history of leasing are more likely to engage in it than firms without. Consequently, we recommended that, managers of leasing businesses become innovative in raising awareness and developing competitive leasing arrangements and products for the corporate sector so as to attract them into taking up contracts. On the other hand, listed non- financial firms should also consider the potential of finance lease as an option for mitigating agency costs of debt financing.

Keywords

Finance Leasing Firm-Attributes Agency Costs Pecking Order Bankruptcy Costs

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How to Cite

Aliya, M., & Lawal, M. (2016). FIRM-SPECIFIC DETERMINANTS OF FINANCE LEASE OF LISTED NON-FINANCIAL FIRMS IN NIGERIA. Nigerian Journal of Accounting Research, 12(2), 20-43.

M. Aliya, and M. Lawal, "FIRM-SPECIFIC DETERMINANTS OF FINANCE LEASE OF LISTED NON-FINANCIAL FIRMS IN NIGERIA," Nigerian Journal of Accounting Research, vol. 12, no. 2, pp. 20-43, December 2016.

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