www.theinternationaljournal.org > RJEBS : Volume: 06, Number: 11, September 2017 Page 46 Effect of Debt Financing on Profitability of Listed Agricultural Companies In Nigeria Charles U. Dioha Department of Accounting and Management, Nigeria Defence Academy, Kaduna, Nigeria. cdioha@ymail.com Aondofa Kamaluga Department of Accounting and Management, Nigeria Defence Academy, Kaduna, Nigeria. kamalugaa@gmail.com Abstract The purpose of this research was to examine the effect of debt financing on the profitability of listed agricultural companies in Nigeria. The study used a sample of 4 listed agric companies in Nigeria. Secondary data from financial statements of the agric companies were used in the study. The data was analyzed using multivariate regression analysis. The results from the study showed that long-term debt finance had a significant negative effect on profitability of listed agricultural companies in Nigeria. The study concluded that long-term debt in the capital structure of the agric companies should be kept at a moderate level to improve their profitability. The study recommends that agricultural companies should be mindful of the level of debt they incur into their businesses so as to avoid it having a negative effect on profitability. Key Words: Agricultural businesses, Debt financing, Profitability, Long-term debt, Debt ratio. 1.0 Introduction The Nigerian economy experienced an unprecedented economic recession caused by a decline in the price of its main export product; the crude oil. The Gross Domestic Product (GDP) continually declined over a period of the second and third quarters in the year 2016 due to negative growth rates in the manufacturing and agricultural sectors. (National Bureau of Statistics, 2016). The economic decline resulted in a harsh environment for firms to operate and many had to downsize, while some closed down entirely and moved operations abroad. The level of interest rates were high and unstable to enable firms carry out accurate capital budgeting. Investments declined resulting in deterioration of key infrastructures in key industries like the Agricultural sector. Agricultural businesses are considered important in both developed and developing countries. They produce goods and services which help to increase economic growth and contribute significantly to employment creation. Although they play this crucial role in economic growth and employment their operations are often crippled by lack of adequate financing from financial institutions. Banks are experiencing liquidity challenges partly due to the Treasury Single Account system of banking introduced into the public sector by the government. Most banks only have deposits which are short-term in nature and this has compromised their intermediary role as they are not able to give long- term loans to enable firms to invest in machinery and equipments which are long-term projects. The inability of banks to issue long-term loans and liquidity challenges of banks is affecting agricultural businesses’ access to financing from banks. The operations of agricultural businesses require capital which can be raised in different ways. One way of raising this capital is through long-term debt finance from financial institutions. Debt finance can be short-term or long-term in nature. Agric businesses can use debt finance to start- up or expand their operations. The purposes of finance are investing in capital projects and meeting working capital requirements. Marcouse, Gillespie, Martin, Surridge, and Wall (2003) wrote that both working capital and money for capital expenditure have to be found before business starts to generate any income. Paul & Cong (2004) stated that working capital is needed for the day to day running of a business.