Influence of Debt Financing on Income Smoothing Practices among Listed Deposit Money Banks in Nigeria

Abstract

This study examined the influence of debt financing on income smoothing among Nigerian listed deposit money banks. The study is specifically examined the influence of total debt ratio on income smoothing. Data collected from sampled twelve (12) listed Nigerian DMBs out of the fourteen (14) listed banks for period from 2009 to 2021. Data were analyzed using random effect panel regression. The results revealed that total debt to equity ratio exerts negative and significant influence on income smoothing measured by absolute discretionary accrual (t= -2.87; p<0.05) respectively. These implied that an increase in total debt ratio will reduce income smoothing. This suggests that the probability of being income smoother is lower when a firm has higher total debt. The study concluded that total debt ratio was negatively influenced the income smoothing among listed deposit money banks. The study therefore, recommends that Nigerian banks should carefully manage their debt levels so as to avoid income smoothing practices by management.