The effect of firm size on performance of firms in Nigeria

Abstract

This study investigates the effect of firm size on the performance of firms in Nigeria. The\nfocus is on firm size as the modern-day phenomenon of economies of scale means this is\na crucial factor in firm performance. We use a panel data set of 12 non-financial firms\noperating in Nigeria in the period 2005-2013. The panel data are analysed using a pooled\nregression model, fixed effects model and random effects model to identify the relationship\nbetween firm size and the performance of firms listed on the Nigeria Stock Exchange\n(NSE). Return on equity is used as a proxy for performance, which serves asthe dependent\nvariable. Total assets and totalsales are the proxiesfor firm size, and the control variables\nare leverage and working capital. The results of the study reveal that firm size in terms of\ntotal assets has a negative effect on performance, while in terms of total sales, firm size\nhas a positive effect on the performance of Nigerian non-financial companies. Meanwhile,\nfor the control variables, a positive relationship with leverage and working capital was\nfound. The study thus suggests that firms’ focus should be on increasing their size by\nboosting turnover and opening up new markets for existing and new products

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