Financial Distress Signals in Nigeria’s Agricultural Firms: The Role of Leverage

Betty Nkiruka Akuchi; Ph.D; Gilbert Ogechukwu Nworie

doi:10.56201/jafm.vol.12.no4.2026.pg131.144

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Financial Distress Signals in Nigeria’s Agricultural Firms: The Role of Leverage

Betty Nkiruka Akuchi, Ph.D, Gilbert Ogechukwu Nworie

Abstract

The study examined the predictive value of firm leverage on financial distress of listed agricultural firms in Nigeria. Specifically, it aimed to determine the effects of debt-to-equity ratio and debt-to-asset ratio on financial distress. An ex-post facto research design was adopted, with a population consisting of Ellah Lakes, FTN Cocoa Processor, Livestock Feeds, Okomu Oil Palm, and Presco, and census sampling was used to include all five firms. Secondary data from the annual reports of the firms covering 2015 to 2024 were collected, and financial distress was measured using the Springate model. Hypotheses were tested using pooled least squares regression with cross-sectional seemingly unrelated regression to correct for cross-sectional dependence and heteroskedasticity. The findings indicated that: an increase in debt relative to equity reduced the Springate score and therefore heightened financial distress (β = -0.000647, p = 0.9827), although insignificantly; an increase in debt relative to total assets lowered the Springate score, leading to higher financial distress (β = -3.0271, p = 0.0000). In conclusion, firms with higher leverage face a greater likelihood of financial distress, highlighting the sensitivity of their financial stability to the composition of debt. The study recommended that financial officers and board members should evaluate the total asset base when considering new debt, aiming to keep the debt-to-total-assets ratio at a level that preserves liquidity and operational flexibility. Regular assessment of asset coverage relative to liabilities can help the organization mitigate risk and maintain stronger overall financial health, directly influencing long-term sustainability.

Keywords

Firm LeverageFinancial DistressAgricultural Firms

References

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Financial Distress Signals in Nigeria’s Agricultural Firms: The Role of Leverage

Abstract

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