AN EMPIRICAL ANALYSIS OF LEASE FINANCING AND FINANCIAL PERFORMANCE OF LISTED PHARMACEUTICAL COMPANIES IN NIGERIA

Abstract

This study empirically examined the effect of lease financing on the financial performance of listed pharmaceutical companies in Nigeria over the period 2019–2023. The study was motivated by the persistent capital constraints, high cost of asset acquisition, and regulatory compliance pressures facing pharmaceutical firms, which make traditional financing options less accessible and position leasing as a potential alternative source of finance. Guided by the Trade-off Theory and Agency Theory, the study adopted an ex post facto research design and used secondary data extracted from the published financial statements of the seven (7) pharmaceutical companies listed on the Nigerian Exchange Group. Lease financing was proxied by Operating Lease (OPL) and Financial Lease (FIL), while financial performance was measured using Return on Assets (ROA) and Return on Capital Employed (ROCE). Data were analyzed using descriptive statistics, Pearson correlation, and ordinary least squares (OLS) regression techniques with the aid of E-Views software. The findings revealed that operating lease has a significant effect on both ROA and ROCE, while financial lease has a significant effect on ROA but an insignificant effect on ROCE. Overall, the results indicate that lease financing exerts a significant influence on the financial performance of listed pharmaceutical companies in Nigeria, though the direction and magnitude of the effect vary by lease type and performance measure. The study concludes that leasing remains a strategic financing instrument for pharmaceutical firms but requires careful structuring to enhance financial performance. The study therefore recommends that pharmaceutical companies should prioritize financial lease agreements over operating leases for assets that support long-term growth and profitability, companies should implement detailed cost-benefit analyses for both operating and financial leases to optimize their impact on financial performance, ensuring that leasing decisions align with overall financial goals.