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

Received: 17 August 2016     Accepted: 29 August 2016     Published: 18 October 2016
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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.

Published in International Journal of Economics, Finance and Management Sciences (Volume 4, Issue 5)
DOI 10.11648/j.ijefm.20160405.21
Page(s) 303-308
Creative Commons

This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited.

Copyright

Copyright © The Author(s), 2016. Published by Science Publishing Group

Keywords

Leverage, Size, Oil, Gas, Regression, Correlation

References
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[2] Baloch, B., Ihsan, A. & Kakakhel, J. (2013) Impact of Firm Size, Asset Tangibility and Retained Earnings on Financial Leverage: Evidence from Auto Sector, Pakistan. Abasyn Journal of Social Sciences. 8(1), 143-155.
[3] Byoun, S.(2007). Financial Flexibility, Leverage, and Firm Size, 1-27, http://www.baylor.edu/business/finance/doc.php/231009.pdf
[4] Ezeoha, A.E. (2008). Firm size and corporate financial-leverage choice in a developingeconomy: Evidence from Nigeria, The Journal of Risk Finance. 9(4), 351–364.
[5] Gill, A. and Mathur, N. (2011)Factors that Influence Financial Leverageof Canadian Firms, Journal of Applied Finance & Banking, 1(2), 2011, 19-37.
[6] Kumar, P.C. (2004). Bid-ask spreads in U.S. equity markets, Quarterly Journal of Business and Economics, 43 3/4, 85-111.
[7] Kurshev, A. and Strebulaev, A.(2005) Firm Size and Capital Structure,http://www.haas.berkeley.edu/groups/finance/KuSt-Paper-2005.
[8] Loderer, C.and Waelchli, U.(2009). Firm Age and Performance,http://www.bi.edu/InstitutterFiles/Finans/Firm_age_performance.pdf
[9] Marete, D. (2011) The Relationship Between Firm Size and Financial Leverage of Firms Listed at Nairobi Securities Exchange, 1-59. repository.uonbi.ac.ke
[10] Mueller, D, C. (1972). “A Life Cycle Theory of the Firm,” Journal of Industrial Economics. (20)3,199-219.
[11] Myers, S. C. (1984). “The Capital Structure Puzzle”. Journal of Finance. 39 (3), 575-592.
[12] Nawaiseh, S. R. (2015). Do Profitability and Size Affect Financial Leverage of Jordanian Industrial Listed Companies. European Journal of Business and Innovation Research. 3(5), 1-12.
[13] Pandey, M. (2004).Capital structure, profitability and market structure: evidence from Malaysia, Asia Pacific Journal of Economics and Business, 8 (2); 23-38.
[14] Pasquale, F. (2006). “Testing for Granger Causality between Stock Prices and Economic Growth”. MPRA Paper 2962, University Library of Munich, Germany, revised 2007.
[15] Rajan, G. R. &Zingales, L. (1995). What do we know about capital structure? Some evidencefrom international data, The Journal of Finance. 50, 1421-60.
[16] Shyam-Sunder, L. and Myers, S (1999), Testing static tradeoff against pecking order models of capital structure, Journal of Financial Economics. 51, 219-244.
[17] Vakilifard, H. and Askarzadeh, G. (2015). Investigating the Effect of Financial Leverage and Firm Size on the Rank of Share Liquidity or Companies Listed on Tehran Stock Exchange, International Journal of Research In Social Sciences. 4(9), 72-78.
[18] Vithessonthi, C. and Tongurai, J. (2013).The Effect of Firm Size on the Leverage-Performance Relationship during the Financial Crisis of 2007–2009, 1 – 54. http://papers.ssrn.com/sol3/papers.cfm?abstract
Cite This Article
  • APA Style

    Inyiama Oliver Ikechukwu, Ubesie Cyril Madubuko. (2016). Effect of Firm Size on Corporate Borrowing of Oil and Gas Firms in Nigeria. International Journal of Economics, Finance and Management Sciences, 4(5), 303-308. https://doi.org/10.11648/j.ijefm.20160405.21

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    ACS Style

    Inyiama Oliver Ikechukwu; Ubesie Cyril Madubuko. Effect of Firm Size on Corporate Borrowing of Oil and Gas Firms in Nigeria. Int. J. Econ. Finance Manag. Sci. 2016, 4(5), 303-308. doi: 10.11648/j.ijefm.20160405.21

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    AMA Style

    Inyiama Oliver Ikechukwu, Ubesie Cyril Madubuko. Effect of Firm Size on Corporate Borrowing of Oil and Gas Firms in Nigeria. Int J Econ Finance Manag Sci. 2016;4(5):303-308. doi: 10.11648/j.ijefm.20160405.21

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  • @article{10.11648/j.ijefm.20160405.21,
      author = {Inyiama Oliver Ikechukwu and Ubesie Cyril Madubuko},
      title = {Effect of Firm Size on Corporate Borrowing of Oil and Gas Firms in Nigeria},
      journal = {International Journal of Economics, Finance and Management Sciences},
      volume = {4},
      number = {5},
      pages = {303-308},
      doi = {10.11648/j.ijefm.20160405.21},
      url = {https://doi.org/10.11648/j.ijefm.20160405.21},
      eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.ijefm.20160405.21},
      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.},
     year = {2016}
    }
    

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  • TY  - JOUR
    T1  - Effect of Firm Size on Corporate Borrowing of Oil and Gas Firms in Nigeria
    AU  - Inyiama Oliver Ikechukwu
    AU  - Ubesie Cyril Madubuko
    Y1  - 2016/10/18
    PY  - 2016
    N1  - https://doi.org/10.11648/j.ijefm.20160405.21
    DO  - 10.11648/j.ijefm.20160405.21
    T2  - International Journal of Economics, Finance and Management Sciences
    JF  - International Journal of Economics, Finance and Management Sciences
    JO  - International Journal of Economics, Finance and Management Sciences
    SP  - 303
    EP  - 308
    PB  - Science Publishing Group
    SN  - 2326-9561
    UR  - https://doi.org/10.11648/j.ijefm.20160405.21
    AB  - 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.
    VL  - 4
    IS  - 5
    ER  - 

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Author Information
  • Department of Accountancy, Enugu State University of Science and Technology, Enugu, Nigeria

  • Department of Accountancy, Enugu State University of Science and Technology, Enugu, Nigeria

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