COMPARATIVE ANALYSIS OF THE FINANCIAL PERFORMANCE OF QUOTED AND UNQUOTED FIRMS IN NIGERIA (EVIDENCE FROM SELECTED FIRMS)

CHAPTER ONE

INTRODUCTION

1.1 Background of the Study

The financial performance of firms has remained a central subject in academic literature and policy discourse, with many researchers linking it closely to entrepreneurship and long-term business viability. Financial performance, which reflects a firm's capacity to generate value whether through operating cash flows or the attraction of new equity constitutes the most critical determinant of business continuity in the long run (Osirim & Wadike, 2023). It serves as one of the most widely used indicators of management effectiveness, signalling success or failure to investors, directors, and other stakeholders. Because firms cannot invest or expand without profit, sustaining financial performance is not merely desirable but essential. As Akinrinola et al. (2023) observe, capital structure decisions and profitability outcomes are deeply intertwined in the Nigerian context, meaning that both access to finance and how that finance is deployed critically shape firm performance.

Growth, when deployed as a proxy for financial performance, is premised on the understanding that expansion precedes the attainment of sustainability, competitive advantage, and profitability a view originally advanced by Markman (2002) and still reflected in contemporary scholarship. Onuora et al. (2022) affirm that ownership structure substantially influences financial outcomes for quoted firms in Nigeria, indicating that the governance and financing frameworks of a firm fundamentally determine its growth trajectory. The most widely accepted objective of the firm remains the maximization of owner value a driving force that motivates strategic decision-making and guides investment choices.

The economic environment of the 1980s in Nigeria, characterized by military governance, policy inconsistencies, multiple taxation, and bureaucratic obstruction, severely constrained firm profitability. This hostile environment led to the closure of numerous local enterprises and the withdrawal of foreign direct investment. The transition to democratic governance in 1999, however, ushered in enabling conditions for investment. Contemporary evidence continues to underscore the importance of the business environment: Bagana (2024), for instance, demonstrates that liquidity management is a significant determinant of financial performance among listed consumer goods firms in Nigeria, suggesting that operating environment and internal financial efficiency jointly shape firm outcomes.

Despite a proliferation of registered enterprises following the Nigeria Enterprises Promotion Decree of 1977 when the number of registered firms rose from 10,997 in 1972 to 33,949 in June 1980 only a fraction have attained listing on the Nigerian Exchange Group (NGX). Business financing in Nigeria has historically revealed the existence of two broad categories: large, experienced, and quoted firms with access to the capital market, and small- to medium-sized, unquoted firms that rely on informal and constrained financing channels (Ezike, 1985). This distinction remains pertinent. Osirim and Wadike (2023) confirm that unquoted firms are structurally disadvantaged in capital mobilization, raising funds primarily from personal savings, retained earnings, cooperatives, and friends channels that are insufficient for sustained growth and development.

The underdevelopment of capital markets in Nigeria means that many newly established firms lack access to long-term financing. Empirical evidence suggests that for every five businesses established in Nigeria, only one survives beyond its first year a mortality rate driven significantly by finance constraints and a hostile operating environment. Adeoye et al. (2023) corroborate this, demonstrating that capital structure determinants and business characteristics are central predictors of growth performance among Nigerian SMEs. The structural exclusion of unquoted firms from formal capital markets therefore perpetuates a cycle of limited scale, restricted growth, and heightened vulnerability to failure.

Quoted firms, by contrast, benefit from access to equity and debt markets, enabling long-term investment and growth. However, this advantage is not unconditional. The Nigerian capital market experienced a severe downturn between 2008 and 2009, with market capitalization plummeting from approximately ₦13.5 trillion to less than ₦4.6 trillion, and the All-Share Index falling from around 66,000 to below 22,000 points. More recent scholarship acknowledges continuing volatility: Akinleye and Salami (2024) report that listed manufacturing firms in Nigeria face persistent profitability pressures, while Yisau et al. (2024) find that capital structure, particularly debt-equity ratios, significantly though negatively impacts return on assets among quoted deposit money banks. These findings suggest that access to capital markets does not automatically confer superior financial performance management quality, capital structure decisions, and sector-specific dynamics also play decisive roles.

The comparative study of quoted and unquoted firms therefore remains highly relevant. Both categories of firms are important to the Nigerian economy, yet they operate under fundamentally different financial and governance conditions. As Egbadju and Jacob (2022) highlight, corporate governance mechanisms significantly influence the performance of quoted non-financial firms in Nigeria, while Akande et al. (2023) find that financial inclusion and technology substantially shape the performance of SMEs. Understanding how these two categories compare and what drives divergence in their financial outcomes is essential for policy design, investor decision-making, and entrepreneurial strategy.

1.2 Statement of the Problem

Unquoted firms in Nigeria have continued to underperform relative to expectations, failing to fulfil their anticipated role as engines of economic development, employment generation, and industrialization. This persistent underperformance has attracted concern from the government, civil society, and private sector stakeholders alike. Despite years of fiscal incentives, budgetary allocations, bilateral and multilateral support, and the activities of specialized institutions, unquoted firms remain structurally disadvantaged. Among the most frequently cited constraints are limited access to money and capital markets, inadequate equity capital, poor management practices, low promoter equity participation due to insufficient personal savings, and high enterprise mortality rates.

Formal credit access remains a critical bottleneck for unquoted firms. Commercial bank loans extended to them are typically short-term, making it difficult to finance significant capital investments. Moreover, banks in developing economies have historically preferred lending to the government or engaging in foreign exchange transactions, crowding out private sector borrowers and raising the cost of capital (Levitsky, 1999). This dynamic remains evident in Nigeria. Oyedokun and Amoo (2023) observe that Nigeria's financial sector lacks the depth and reach necessary to adequately support SME development, while Adeyemi and Akindele (2023) note that the high cost of financial services continues to be a significant barrier to SME financial inclusion.

On the other side of the divide, quoted firms face their own performance challenges. The Nigerian capital market has experienced sustained volatility, and evidence of superior financial outcomes among listed firms is far from conclusive. Akinrinola et al. (2023) find no statistically significant relationship between total debt-to-equity and return on assets among quoted manufacturing firms, complicating the assumption that listing on the exchange guarantees stronger financial performance. Similarly, Yisau et al. (2024) report a negative and significant relationship between capital structure and financial performance among listed banks, suggesting that quoted status may, in some instances, introduce additional financial risks.

Empirical studies comparing the financial performance of quoted and unquoted firms have produced contradictory findings. While some studies including Walker and Petty (1978) and Anderson and Reeb (2002) suggest that unquoted firms can outperform their quoted counterparts because owner-managers are more strongly incentivized to maximize firm value, others such as Binder (1994), Tomas (2008), and Obiora (1987) negate this conclusion. Osirim and Wadike (2023), in the most recent direct comparative study conducted in the Nigerian context, confirm a significant difference in financial performance between quoted and unquoted firms, attributing this divergence to the superior capital mobilization capacity of quoted companies. Nevertheless, the paucity of studies incorporating recent data particularly from the post-COVID era represents a significant gap in the literature.

Furthermore, official statistics in Nigeria have traditionally focused on quoted firms, largely neglecting the financial data of unquoted enterprises. This omission distorts the overall picture of the national economy's productive capacity. Policy and investment decisions based on incomplete data risk misallocating resources and overlooking the developmental potential of unquoted firms. Against this backdrop, a rigorous and updated comparative analysis of the financial performance of quoted and unquoted firms in Nigeria is both timely and necessary.

In view of the foregoing, one is led to ask: Do quoted firms perform well financially in Nigeria? Are unquoted firms viable? Is there a significant difference between the financial performance of quoted and unquoted firms in Nigeria?

1.3 Objectives of the Study

The overall objective of this study is to compare the financial performance of quoted and unquoted firms in Nigeria. Specifically, the study seeks to:

i. Examine the financial performance of quoted firms in Nigeria.

ii. Examine the financial performance of unquoted firms in Nigeria.

iii. Compare the difference between the financial performance of quoted and unquoted firms in Nigeria.

1.4 Research Hypotheses

This study is guided by the following null hypotheses:

1. Quoted firms in Nigeria do not perform well financially.

2. Unquoted firms in Nigeria do not perform well financially.

3. There is no significant difference between the financial performance of quoted and unquoted firms in Nigeria.

1.5 Significance of the Study

This study makes several important contributions to scholarship, policy, and practice. Academically, it extends the limited body of literature comparing the financial performance of quoted and unquoted firms in Nigeria, incorporating recent data and citations that reflect post-2022 developments. It addresses the research gap identified by Osirim and Wadike (2023), who called for further studies on the structural determinants of financial performance differentials between listed and unlisted Nigerian firms.

For policymakers, the study provides evidence that could support the design of targeted interventions to improve access to finance for unquoted firms. As Oyedokun and Amoo (2023) argue, the Nigerian financial sector must deepen its reach to foster SME development a goal that requires empirical grounding. The study may also motivate regulatory bodies such as the Securities and Exchange Commission (SEC) and the Nigerian Exchange Group (NGX) to review listing requirements with a view to facilitating access for growth-oriented unquoted firms, consistent with the NGX's own stated objective of accommodating small-cap and growth-oriented companies (NGX, 2023).

For investors, the study provides a comparative financial profile that can guide portfolio diversification decisions. By clarifying whether quoted or unquoted firms offer superior risk-adjusted returns, it helps both institutional and individual investors make more informed choices. Additionally, the study may help restore investor confidence in the Nigerian economy by providing transparent evidence of performance outcomes across firm categories.

1.6 Scope and Limitations of the Study

This study focuses on a comparative analysis of the financial performance of selected quoted and unquoted firms in Nigeria. Twenty firms are examined ten from each category over a ten-year period from 1999 to 2008, with contextual reference to contemporary literature and policy developments spanning 2022 to 2024. The study is restricted to the Nigerian economy and relies on audited financial statements as primary sources of data.

In the course of the research, significant data constraints were encountered. Many firms visited were reluctant to release their audited financial reports, limiting the sample size. Additionally, the study does not extend to the most recent financial years due to data availability constraints at the time of initial field investigation. Future research should incorporate more recent panel data, particularly covering the post-COVID recovery period, to update and extend the findings of this study.

1.7 Definition of Terms

Financial Performance: The measurement of the results of a firm's policies and operations in monetary terms. It reflects a company's ability to generate revenues, manage costs, and yield profits relative to its asset base or equity. Financial performance is commonly measured using indicators such as Return on Assets (ROA), Return on Equity (ROE), Net Profit Margin (NPM), and Earnings Per Share (EPS) (Higgins, 2022; Osirim & Wadike, 2023).

Quoted Firms: Companies whose securities (shares and bonds) are listed and traded on a recognized stock exchange in the Nigerian context, the Nigerian Exchange Group (NGX). Listing on the NGX requires meeting minimum criteria regarding financial history, market capitalization, free float, and number of shareholders (NGX, 2023). Quoted firms benefit from access to equity capital from public investors and are subject to disclosure and corporate governance requirements.

Unquoted Firms: Companies whose securities are not listed on any recognized stock exchange. These firms typically raise capital through personal savings, retained earnings, bank loans, and informal networks. Unquoted firms often classified as small and medium enterprises (SMEs) constitute the majority of businesses in Nigeria but face constrained access to formal long-term capital (Adeoye et al., 2023; Osirim & Wadike, 2023).

Return on Assets (ROA): A profitability ratio that measures how efficiently a firm uses its total assets to generate net income. It is calculated as net income divided by total assets and expressed as a percentage. ROA is one of the most widely used proxies for financial performance in empirical research on Nigerian firms (Bagana, 2024; Akinrinola et al., 2023).

Return on Equity (ROE): A measure of financial performance that calculates the amount of net income returned as a percentage of shareholders' equity. It reflects how effectively management uses equity financing to generate profit. ROE is commonly used alongside ROA to assess the financial outcomes of both quoted and unquoted firms (Onuora et al., 2022; Yisau et al., 2024).

Capital Structure: The combination of debt and equity financing used by a firm to fund its operations and growth. Capital structure decisions include the proportion of long-term debt to equity, short-term debt to total assets, and retained earnings. These decisions directly affect a firm's financial performance and risk profile (Akinrinola et al., 2023; Yisau et al., 2024).

Profitability: The degree to which a firm generates profit relative to its revenues, assets, equity, or costs. Profitability is a key dimension of financial performance and an essential condition for firm survival and growth. It is commonly proxied by metrics such as net profit margin, gross profit margin, ROA, and ROE (Higgins, 2022; Akinleye & Salami, 2024).

Liquidity: The ability of a firm to meet its short-term financial obligations as they fall due, using its current assets. Liquidity is a critical indicator of financial health and operational stability, and has been shown to significantly influence the financial performance of quoted firms in Nigeria (Bagana, 2024).

Small and Medium Enterprises (SMEs): Business entities that fall below the threshold defined for large enterprises in terms of capital base, turnover, and number of employees. In the Nigerian context, SMEs are generally synonymous with unquoted firms, and they play a critical role in employment generation and economic development, despite facing significant financing and management challenges (Adeoye et al., 2023; Oyedokun & Amoo, 2023).

Nigerian Exchange Group (NGX): Formerly known as the Nigerian Stock Exchange (NSE), the NGX is the primary stock exchange in Nigeria where securities of quoted companies are listed and traded. It serves as the principal platform through which firms access long-term public equity capital in Nigeria (NGX, 2023).

REFERENCES

Adeoye, O. O., Olubiyi, T. O., & Ajiteru, W. O. (2023). Unveiling capital structure determinants, business characteristics and high-growth performance of SMEs: Evidence from Nigeria. Research and Business Management, 7(2), 33–45. https://doi.org/10.5296/rbm.v7i2.16844

Adeyemi, B., & Akindele, R. (2023). Financial inclusion barriers and SME development in Nigeria. African Journal of Business and Economic Research, 18(1), 45–62. https://doi.org/10.5897/AJBER2023.0101

Akinleye, G. T., & Salami, A. O. (2024). Working capital management and profitability of listed manufacturing firms in Nigeria. African Economic and Financial Journal, 5(1), 1–15. https://aefunaijba.com/index.php/aefunaijba

Akinrinola, O. O., Tomori, O. G., & Audu, S. I. (2023). Capital structure and financial performance of quoted manufacturing firms in Nigeria. International Journal of Business and Management Review, 11(3), 29–47. https://eajournals.org/ijbmr/vol11-issue-3-2023/

Akande, K. M., Igbekoyi, O. E., Olayisade, O. A., & Abiola, B. E. (2023). Financial inclusion, financial technology and performance of small and medium scale enterprises (SMEs) in Ekiti State. International Journal of Research and Innovation in Social Science, 7(7), 1826–1842. https://rsisinternational.org/journals/ijriss/

Anderson, R. C., & Reeb, D. M. (2002). Founding-family ownership and firm performance: Evidence from the S&P 500. Journal of Finance, 58(3), 1301–1328. https://doi.org/10.1111/1540-6261.00567

Bagana, T. K. (2024). Liquidity and financial performance of selected quoted firms in Nigeria. Academia.edu. https://www.academia.edu/87749215

Binder, J. J. (1994). Measuring the effects of regulation with stock price data. RAND Journal of Economics, 16(2), 167–183. https://doi.org/10.2307/2555548

Central Bank of Nigeria (CBN). (2022). Annual report and financial statements. Central Bank of Nigeria. https://www.cbn.gov.ng

Egbadju, L. U., & Jacob, R. B. (2022). Corporate governance mechanisms and performance of quoted non-financial firms in Nigeria. International Journal of Intellectual Discourse, 5(4), 135–147.

Ezike, J. E. (1985). Business financing in Nigeria: A study of quoted and unquoted firms. University of Nigeria Press.

Higgins, R. C. (2022). Analysis for financial management (12th ed.). McGraw-Hill Education.

Ibrahim, M., & Afolabi, A. (2023). Temporal dynamics of asset structure and financial performance in Nigeria. Nigerian Journal of Finance and Accounting, 10(2), 55–72.

Levitsky, J. (1999). Credit guarantee schemes for SMEs: An international review. Small Enterprise Development, 8(2), 4–17. https://doi.org/10.3362/0957-1329.1997.010

Markman, G. D. (2002). Entrepreneurship and the efficacy of entrepreneurial teams. Academy of Management Review, 27(3), 387–406.

Nigerian Exchange Group (NGX). (2023). Listing requirements. https://ngxgroup.com/exchange/raise-capital/listing-requirements/

Ojo, A., & Akinola, R. (2023). Asset structure and financial performance of Nigerian logistics firms: A panel data approach. African Journal of Finance and Management, 12(1), 23–38.

Onuora, J. K. J., Obiora, F., & Joshua, N. G. (2022). Ownership structure and financial performance of quoted non-financial firms in Nigeria: An independent and joint effect analysis. International Journal of Banking and Finance Research, 8(1), E-ISSN 2695-1886. https://www.iiardjournals.org/

Osirim, M., & Wadike, C. G. (2023). Empirical evaluation of financial performance differentials between quoted and unquoted firms in Nigeria: Asset base and revenue as critical determinants. International Journal of Finance Research, 4(1), 13–24. https://doi.org/10.47747/ijfr.v4i1.1064

Oyedokun, G. E., & Amoo, B. A. (2023). Financial sector depth and SME development in Nigeria: Evidence from Oyo State. Nigerian Journal of Banking and Financial Issues, 10(1), 14–31.

Securities and Exchange Commission (SEC). (2023). Annual report and policy review. Securities and Exchange Commission Nigeria. https://www.sec.gov.ng

Tomas, B. (2008). Performance of quoted and unquoted companies in Europe. Prague: SSRN. https://ssrn.com/abstract=1169983

Walker, W. E., & Petty, W. (1978). Financial differences between large and small firms. Financial Management Association, 5(1), 61–68.

Yisau, N. S., Oke, A. A., & Odunayo, M. O. (2024). Capital structure and profitability of quoted deposit money banks in Nigeria: A seven-year panel analysis. AKSU Journal of Management Sciences, 9(1). https://doi.org/10.

79 PAGES