Examining the Financial Structure and Performance of Listed SMEs in Nigeria

Abstract

Listed SMEs in the Alternative Securities Market have continued to perform below expectation in terms of profitability and return on investment, which made investors lose billions of Naira in the sector. Hence, many of these firms were delisted. This was in spite of the recent creation of these specialised boards for emerging and high-growth SMEs to access equity funds in the capital market to ease their financial need. It seemed that the optimal combination of this newly introduced equity with the hitherto used debt in their financial structure might pose a challenge, and that provided the motivation for this study. The main objective of this study was to examine the relationship between financial structure and the performance of listed SMEs in Nigeria. This relationship was examined after controlling for firm size and sales growth. An ex-post facto research design was adopted for the study. The population size was the 16 listed firms in these specialised boards. A sample size of 11 was selected based on the availability of their financial statements from 2012 to 2021. The independent variable was financial structure proxied by total debt to total equity ratio (TDTE), current ratio (CACL), long-term leverage ratio (LDTC), and total leverage ratio (TDTC). The dependent variable was financial performance measured by return on investment (ROI). The data were analysed using descriptive statistics, while the multiple regression technique was used to analyse the variables. From the analyses, TDTE indicated a negative, insignificant influence on ROI. The current ratio indicated a positive, insignificant influence on ROI, while both LDTC and TDTC indicated a negative, significant influence. It was concluded that financial structure has significant influence on the performance of listed SMEs in Nigeria. It is recommended that listed SMEs in Nigeria maintain a healthy leverage ratio, as too much debt may negatively influence their ROI. They should also devise new strategies for the proper management of liquidity, as their current ratio values imply poor management of liquid assets.