Effect of Economic Recession on Finance Lease Use by Listed Non-Financial Firms in Nigeria

Abstract

Economic recessions generate uncertainties that exacerbate the problem of information asymmetry and limit availability and access to finance by listed firms. In view of the fact that these firms adhere to a pecking order in corporate financing, necessitated by the costs of information asymmetry, the paper sought to examine the effect of the recent economic recession on finance lease use by listed non-financial firms in Nigeria. A correlation research design was adopted for a sample of 20 listed non-financial firms, studied over the period 2010-2017. Controlling for firm size, Generalized Least Square (GLS) Regression was run with the aid of statistical software, STATA. The results suggest that economic recession has a positive and statistically significant effect on finance lease use. The paper concludes that economic recession poses constraints on firms’ internal financing capacities and external finance contracting thus, lease finance tends to be employed as a last resort alternative. Recommendation is made for lessors’ capacity to be enhanced in order to meet increasing demand for lease finance in the aftermath of a recession. This could be achieved through facilitating access by lessors to insurance and pension funds. The resulting investments in general and specialized assets would ensure varying capital asset needs of diverse corporate firms can be met in tandem with expanding the market base of leasing businesses.