Leverage and Profitability of Listed Healthcare Firms in Nigeria
Chapter One
Objective of the study
The objective of the study on the leverage and profitability of listed healthcare firms in Nigeria is to investigate the relationship between leverage decisions and profitability within the healthcare sector. Specifically, the study aims to achieve the following objectives:
- Analyze the leverage patterns of listed healthcare firms in Nigeria
- Evaluate the profitability performance of listed healthcare firms using key financial metrics such as return on assets (ROA), return on equity (ROE), and net profit margin.
- Investigate the relationship between leverage and profitability, considering factors such as firm size, growth opportunities, industry dynamics, and regulatory environment.
- Identify the determinants influencing leverage decisions among healthcare firms in Nigeria
CHAPTER TWO
REVIEWED OF RELATED LITERATURE
INTRODUCTION
Tian and Zeitun (2007) findings is that firm’s capital structure have a significant and negative impact on the firm’s performance measures in both the accounting and market measures and that, the short-term debt per total asset has a significant relationship with the market performance measure (Tobin’s Q). Huang and Song, (2006) studying China firms, found a negative correlation between leverage and performance. Booth et al., (2001) and Chakraborty (2010) found negative relationship between capital structure and performance. Ebaid (2009), studying the influence capital structure has on performance in Egypt, representing financial performance with Return on asset, Return on equity and Gross margin while representing capital structure with short term debt, long term debt and total debt. The finding shows that capital structure has weak-to-no influence on the financial performance of listed firms in Egypt. While studying Ghanaian firms over the period 1998-2002, Abor (2005) reported that positive relationship, exist between capital structure and performance. Akintoye (2008) investigated sensitivity of performance to capital structure on Food and Beverage Company in Nigeria, the result shows that performance indicators of turnover (Earnings before Interest and Taxes, Earnings Per Share and Dividend Per Share) are significantly sensitive to the measures of leverage (Degree of Operating Leverage, Degree of Financial Leverage and Degree of combined leverage). Osuji and Odita (2012) examined the impact of capital structure on financial performance of Nigerian firms using a sample of thirty nonfinancial firms listed on the Nigerian Stock Exchange during the seven (7) year period, 2004 – 2010. Panel data for the selected firms were generated and analyzed using ordinary least squares (OLS) as a method of estimation. The fixed and random effect of industry on result was also taken into consideration. The result showed that a firm’s capital structure surrogated by Debt Ratio (DR) has a significantly negative impact (1% level of significance) on the firm’s financial measures proxy by Return on Asset (ROA) and Return on Equity (ROE). Their findings of the study indicate consistency with prior empirical studies and provide evidence in support of Agency cost theory. They are of the opinion that firms are over leveraged and that impact negatively on financial performance. Uwalomwa and Uadile (2012) investigated the relationship between capital structure and financial performance of listed firms in Nigeria. The study considered a total sample of 31 listed firms on the floor of the Nigerian stock exchange. Analyzing the annual report of the selected firms for five (5) years spanning from 2005 – 2009 with the aid of Ordinary Least Squares (OLS) technique of model estimation. The study observed that two of the explanatory variables in the study (i.e. short-term debt and shareholders’ funds) have a significant positive impact on the financial performance (ROA) of the selected firms. This consequently suggested that short-term debt tends to be less expensive; and therefore incremental short-term debt in capital structure will lead to an increase in performance levels of firms. While observing long-term debt and financial performance, the study observed that long-term debt has a significant negative impact on the financial performance of firms. This suggested that long-term debt is relatively more expensive due to certain direct and indirect costs associated with it. The study concluded that employing high proportion of long-term debt in firms’ capital structure will invariably result in a low financial performance of a firm and short-term debt is a preferable source of financing for profitable firms. Abdul (2012) studied listed engineering firms on Karachi stock exchange in Pakistan for 2003-2009. The study used pooled least square regression to analyze the data generated from 36 selected firms with the purpose of finding out the relationship existing between capital structure decision and firm performance in the developing market economies. The findings of His study shows that financial leverage measured by short term debt to total assets (STDTA) and total debt to total assets (TDTA) has a significant negative relationship with the firm performance measured by Return on Assets (ROA), Gross Profit Margin (GM) and Tobin’s Q. The relationship between financial leverage and firm performance measured by the return on equity (ROE) is negative but insignificant. Asset size has an insignificant relationship with the firm performance measured by ROA and GM but negative and significant relationship exists with Tobin’s Q. The study added that firms in the engineering sector of Pakistan are largely dependent on short-term debts, which are attached with strong covenants, which affect the performance of the firm.
CHAPTER THREE
RESEARCH METHODOLOGY
INTRODUCTION
In this chapter, we described the research procedure for this study. A research methodology is a research process adopted or employed to systematically and scientifically present the results of a study to the research audience viz. a vis, the study beneficiaries.
RESEARCH DESIGN
Research designs are perceived to be an overall strategy adopted by the researcher whereby different components of the study are integrated in a logical manner to effectively address a research problem. In this study, the researcher employed the survey research design. This is due to the nature of the study whereby the opinion and views of people are sampled. According to Singleton & Straits, (2009), Survey research can use quantitative research strategies (e.g., using questionnaires with numerically rated items), qualitative research strategies (e.g., using open-ended questions), or both strategies (i.e., mixed methods). As it is often used to describe and explore human behaviour, surveys are therefore frequently used in social and psychological research.
POPULATION OF THE STUDY
According to Udoyen (2019), a study population is a group of elements or individuals as the case may be, who share similar characteristics. These similar features can include location, gender, age, sex or specific interest. The emphasis on study population is that it constitutes of individuals or elements that are homogeneous in description.
This study was carried to examine leverage and profitability of listed healthcare firms in Nigeria. Selected hospital in Ibadan form the population of the study.
CHAPTER FOUR
DATA PRESENTATION AND ANALYSIS
INTRODUCTION
This chapter presents the analysis of data derived through the questionnaire and key informant interview administered on the respondents in the study area. The analysis and interpretation were derived from the findings of the study. The data analysis depicts the simple frequency and percentage of the respondents as well as interpretation of the information gathered. A total of eighty (80) questionnaires were administered to respondents of which only seventy-seven (77) were returned and validated. This was due to irregular, incomplete and inappropriate responses to some questionnaire. For this study a total of 77 was validated for the analysis.
CHAPTER FIVE
SUMMARY, CONCLUSION AND RECOMMENDATION
Introduction
It is important to ascertain that the objective of this study was to ascertain leverage and profitability of listed healthcare firms in Nigeria. In the preceding chapter, the relevant data collected for this study were presented, critically analyzed and appropriate interpretation given. In this chapter, certain recommendations made which in the opinion of the researcher will be of benefits in addressing leverage and profitability of listed healthcare firms in Nigeria
Summary
This study was on leverage and profitability of listed healthcare firms in Nigeria. Three objectives were raised which included: Analyze the leverage patterns of listed healthcare firms in Nigeria, evaluate the profitability performance of listed healthcare firms using key financial metrics such as return on assets (ROA), return on equity (ROE), and net profit margin, investigate the relationship between leverage and profitability, considering factors such as firm size, growth opportunities, industry dynamics, and regulatory environment and identify the determinants influencing leverage decisions among healthcare firms in Nigeria. A total of 77 responses were received and validated from the enrolled participants where all respondents were drawn from selected hospital in Ibada. Hypothesis was tested using Chi-Square statistical tool (SPSS).
Conclusion
The study concluded that the leverage has significant negative effect on ROA in among selected health care firm in Nigeria
Recommendation
Managers should use debts as a source of finance since a positive impact existed between the financing mix and corporate firm’s performance in Nigerian investment climate. However, a prudent management of corporate debts has prospects of increasing returns in future.
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