WORLD JOURNAL OF FINANCE AND INVESTMENT RESEARCH (WJFIR )

E-ISSN 2550-7125
P-ISSN 2682-5902
VOL. 8 NO. 4 2024
DOI: 10.56201/wjfir.v8.no4.2024.pg19.53


Effect of Lease Financing on the Corporate Financial Performance of Quoted Non-Financial Companies in Nigeria

Onyenenue, Donatus Ejoh, Ndifon Ojong, PhD.


Abstract


The study determined the effect of lease financing on the corporate financial performance of quoted non-financial companies in Nigeria. The specific objective was to examine the effect of operating leases and capital leases on the return on assets of quoted non-financial companies in Nigeria. Ex-post facto research design was used in the study. The population of the study comprised 63 listed non-financial firms in Nigeria. Data were collected from thirty (30) quoted companies between 2011-2020. The Panel Regression results estimated using Panel Corrected Standard Error (PCSE) revealed the following: Operating leases has significant effect on the Returns on assets (ROA) of quoted non-financial companies in Nigeria at the 0.05 significance levels; capital leases have significant effect on the Returns on assets (ROA) of quoted non- financial companies in Nigeria at the 0.05 significance levels. In conclusion, the positive effect of finance leases on ROA of Nigerian non-financial quoted companies is a result of higher contribution of leases to profits, than to assets components. The study recommends that firms should embrace operating leases financing as a method of financing their operations in order to improve operating profits, as such leases do not utilize or deplete existing working capital of firms.


keywords:

Lease Financing, Corporate Financial Performance, Operating Leases, Capital


References:


Abor, J. (2007). Debt policy and performance of SMES, evidence from Ghanaian and South
African firms. Journal of Risk Finance, 8, 364-379.
Adams, A. T., & Clarke, R. T. (2006). Stock market reaction to sale and leaseback
announcements in the UK. Journal of Property Research, 13, 31-46.
Adams, M., & Hardwick, P. (2008). Determinants of leasing among United Kingdom listed
companies. Journal of Applied Financial Economics, 487-494.
Adekunle, W. (2005). Risk default in the Nigerian leasing industry: In managing default in the
leasing of Nigeria. Leasing Today a Quarterly Newsletter of Equipment Leasing
Association of Nigeria. 6, 15-18.
Asimakopoulos, I., Samitas, A., & Papadogonas, T. (2009). Firm specific and economy wide
determinants of firm profitability: Greek evidence using panel data. Journal of
Managerial Finance, 35(11), 930-939.
Asuquo, A., & Anyadike, C. B. (2018, November 4 – 6). Effect of lease financing on corporate
performance of deposit money banks in Nigeria: 2005-2016 [Conference session].
8thInternational Conference of Accounting and Finance Research Association,
University of Calabar International Conference Centre, Calabar, Nigeria.
Atseye, F. A., Mboto, H. W., & Lawal, S. G. (2019). Lease financing and profitability:
Evidence from Nigerian quoted conglomerates. International Journal of Economics
and Financial Issues, 10(1), 132 – 137.
Barclay, M. J. & Smith, C. W. (2005). The priority structure of corporate liabilities. Journal of
Finance, 50, 899-917.
Baskin, J. (1989). An empirical – investigation of the pecking order hypothesis. Financial
Management, 18(1), 26-35
Beattie, V. A., Edwards, K. & Goodacre, A. (2000). The impact of constructive operating lease
capitalization on key accounting ratios. Accounting and Business Research, 28(4), 233-
Bello, U., Ahmad, H. S., & Aliyu, A. A. (2016). The impact of lease financial performance of
Nigerian oil and gas industry. Research Journal of Finance and Accounting, 7(4), 28-
Bootle, R. (2002). Real estate in business - A waste of space? Royal Institution of Chartered
Surveyors (RICS), London. https://www.rics.org
Branswijck, D., Longueville, S., & Everaert, P. (2011). The financial impact of the proposed
amendments to IAS 17: Evidence from Belgium and the Netherlands. Accounting and
Management Information Systems, 10(2), 275-294.
Brealey, A. & Myers, S. (2003). Principles of corporate finance. McGraw-Hill/Irwin.
Brown, C. S. & Wyatt, A. R. (1983). Liabilities belong in a Footnote or do they not? Georgia
Journal of Accounting, 1-15.
Callimaci, A., Fortin, A., & Landry, S. (2011). Determinants of leasing propensity in Canadian
listed companies. International Journal of Managerial Finance, 79(3), 259-283.
Clark, T. (2008). Leasing. McGraw-Hill Book Company Limited.
Cohen, J., Cohen, P., West, S. G., & Aiken, L. S. (2003). Applied multiple
regression/correlation analysis for the behavioural sciences. Lawrence Erlbaum
Associates.
Cooper, D., & Schindler, P. S. (2003). Business research methods. McGraw-Hill Publishing
Company.
Coughlan, J. (1980). Regulation, rents, and residuals. Journal of Accountancy, 58-66.
Day, A. (2000). The finance director’s guide to purchase leasing, financial fines. Prentice Hall.
De Laurentis, G., & Mattei, J. (2009). Lessors’ recovery risk management capability. Journal
of Managerial Finance, 35(10), 860-873.
Devaney, S., & Lizieri, C. (2004). Sale and leaseback, asset outsourcing and capital market
impacts. Journal of Corporate Real Estate, 6(2), 118-132.
Dhaliwal, D., Lee, H. S., & Neamitu, M. (2011). The impact of operating leases on firm
financial and operating risk. Journal of Accounting, Auditing and Finance, 26(2), 151-
Dieter, R. (1979). Is lease accounting working? The CPA Journal, 13-19
Donaldson, G. (1961). Corporate debt capacity: A study of corporate debt policy and the
determination of corporate debt capacity. Harvard Publishing House.
Duke, J.C., Franz, D., & Hsieh, S. (2012). Evaluating constructive lease Capitalization and
off-balance-sheet Financing: An instructional Case with FedEx and UPS. Accounting
Perspectives, 11(1), 57-65.
Eisfeldt, A., & Rampini, A. (2009). Leasing, Ability to Repossess, and Debt Capacity. Review
of Financial Studies. 22. 1621-1657.
Ezzell, J. R., & Vora, P. P. (2001). Leasing versus purchasing: Direct evidence on corporation’s
motivations for leasing and consequences of leasing. Quarterly Review of Economic
and Finance, 41, 33-47.
Fahnestock, R. T. (1998). A qualitative analysis of the content of operating lease disclosure.
Journal of Oil, Gas, and Energy quarterly, 4, 343-358
Fahnestock, R. T., & King, C. G. (2001). An evaluation of the impact of constructive operating
leases on financial position and results of operations. Journal of Accounting and
Finance Research, Summer, 39-52.
Gall, M., Gall, J., & Borg, W. (2006). Educational research: An introduction. Allyn & Bacon
Publishers.
Hassan, S. U. (2009). The impact of finance lease on the profitability of Nigerian Banks.
Journal of Finance and Accounting Research, 1(3).
Imhoff, E. A., Lipe, R. C., & Wright, D. W. (1993). The effect of recognition versus disclosure
on shareholder risk and executive compensation. Journal of Accounting, Auditing &
Finance, 8(4), 335-368.
Imhoff, E. A., Lipe, R. C., & Wright, D. W. (1997). Operating leases: Income effect of
constructive capitalization. Journal of Accounting Horizons, 11(2), 12-32
Imhoff, E. A., Robert C. L., & David, W. W. (2004). Operating leases: Impact of constructive
capitalization. Journal of Accounting Horizons, 5, 51-63.
Imhoff, E., Lipe, R., & Wright, D. (1991). Operating leases: Impact of constructive
capitalization. Accounting Horizons, 5(1), 51-63.
Islam, M., Nasira, S., & Pritom, S. T. (2016). Impact of lease finance on productivity,
profitability & employment in small manufacturing firms in Bangladesh: Study on
united leasing company. International Journal of Latest Research in Engineering and
Technology (IJLRET), 2(6), 89 – 108.
Jabbarzadeh, S. K., Motavasel, M., & Mohammed, R. S. (2012). The effect of off-statement of
financial position financing on profitability and leverage ratios. Business Intelligence
Journal, 5(1).
Jensen, M. C., & Meckling, W. H. (1976). Theory of the firm: Managerial behavior, agency
costs and ownership structure. Journal of Financial Economics, 3(4), 305-360.
Kibuu, M. K. (2015). Effects of lease financing on the financial performance of Companies
Listed in Nairobi Securities Exchange [Unpublished Research Project, the University
of Nairobi].
Kraemer, H., & Lang, F. (2012). The importance of leasing for SME finance. Working Paper
2012/15 EIF Research & Market Analysis, Luxembourg.
Krishnan, V. S. & Moyer, R. C. (2008). Bankruptcy costs and the financial leasing decision.
Journal of Financial Management, 23, 31-42.
Krishnan, V.S., & Moyer, R. C. (2004). Bankruptcy costs and the financial leasing decision.
Journal of Financial Management, 23, 31-42.
Kurfi, A. K. (2003). Principles of Financial Management. Benchmark Publishers’ Ltd.
Kurfi, A. K. (2015). Lease financing and the liquidity position of Nigerian manufacturing
firms. Bayero International Journal of Accounting Research, 2(1).
Kyereboah-Coleman A. (2007). Corporate governance and firm performance in Africa: A
dynamic panel data analysis. International conference on corporate governance in
emerging markets. Sabanci University, Istanbul, Turkey.
Lasfer, M. (2007). On the financial drivers and implications of leasing real estate assets: The
Donalsons-Lasfer’s curve. Journal of Corporate Real Estate, 9(2), 72-96.
Lasfer, M. A. & Levis, M. (2008). The Determinants of Leasing Decision of Small and Large
Companies. European Financial Management, 4, 159-84.
Lewis, C. M. & Schallheim, J. S. (1992). Are debt and leases s


DOWNLOAD PDF

Back