Effects of Debt Usage on the Performance of Small Scale Manufacturing Firms in Kogi State of Nigeria

Abstract

This study, the effects of debt on the profitability of small manufacturing firms in Kogi State of Nigeria, was undertaken to find out if the use of debt (leverage) by small scale manufacturing firms (SMFs) resulted into an increase in the return and improvement in the value of the firm through capital structure. The profitability of the small scale manufacturing firms for this study is determined in terms of return on asset (ROA) and return on equity (ROE) and they are express as percentage. A total of 20 SMFs were randomly selected from total population of the study. Regression equation was used to determine the pattern and strength of the relationship that exists between leverage and value/profitability of a firm including a two -variable regression equation. The Main hypothesis of this study which used 95% confidence level to determine the capital significance of the test hinged on determining the relationship between debt usage and the value of a small scale manufacturing firms. The main finding from the result obtained confirmed the null hypothesis postulated namely that there is no significant relationship between debt usage and the value of a small scale manufacturing firms in Kogi State, Nigeria. The study recommended that tax incentives, concessional interest rate on loan and providing more equity funding for small scale manufacturing firms in Nigeria.