Determinants Of Finance Lease Capitalization Accounting Choice: An Empirical Investigation Of Nigeria Listed Firms

Abstract

This study examined many significant aspects that impacted the decision-making process of capitalising finance leases in accounting. The research investigated the significance of business-size, leverage, firm age, cash flow, effective tax rate, and liquidity ratio as key variables. The research design used for this study was ex-post-facto. This specific research approach used pre-existing information gathered from prior occurrences. The study included a total of 156 publicly traded companies listed on the Nigerian Exchange Group (NGX) as of December 31, 2022. Purposive sample technique adopted for data collection. The study focused on a comprehensive sample of 44 firms listed on the NGX as of December 2022. The findings of the regression analysis indicate that firm age (FIMA) and leverage (LEVERAGE) are the main factors influencing finance leasing capitalization (FLC) within this particular model. There is a positive correlation between the age of enterprises and their level of leverage, and their propensity to use finance lease capitalization. However, it is worth noting that there is no statistically significant linear association between FLC and variables such as cash flow, effective tax rate (ETR), the natural logarithm of firm size (LGSIZE), and liquidity (LIQ). The aforementioned results provided significant insights that might be of great use to individuals responsible for financial decision-making as well as legislators. The study suggested that firms should consider certain factors in order to effectively manage finance lease capitalization (FLC). Specifically, firm age (FIMA) and leverage (LEVERAGE) have been identified as significant determinants of FLC. Therefore, it is recommended that firms focus on increasing firm size strategically, optimising leverage levels, and effectively monitoring tax rates.