Corporate Internal Financing and Growth Potential of Listed Agricultural Firms in Nigeria

Abstract

This study aims to evaluate the effect of corporate internal financing on the growth potential of listed agricultural firms in Nigeria. The specific objectives of this study were to evaluate the effect of retained earnings ratio, depreciation and amortization to value-added ratio, and working capital to net operating cash flow ratio on the growth rate of the selected listed agricultural firms in Nigeria. The study adopted an ex-post facto design. Data were generated from the audited financial reports of the four selected listed agricultural firms from 2012-2022. A pooled multiple regression technique was employed to analyze the data using Stata 14.2. The study found that assets retained earnings ratio, depreciation and amortization to value-added ratio, and working capital to net operating cash flow ratio have non-significant positive, negative and negative effects on growth rate with t-statistics and (p-values) 0.28 (0.845), -1.27 (0.215) and -0.54 (0.594) respectively. The result also showed that leverage has a strong positive effect on growth rate with t-statistics and (p-values) 2.53 (0.006) with quality of earnings ratio having a non-significant effect on potential growth rate. These results imply that none of the internal financing options is sufficient to spur growth in the agricultural firms in Nigeria, hence they have shifted to the second pecking order theoretical choice of business financing despite the harsh business conditions and high cost of finance.