IMPACT OF RETAINED EARNINGS ON BUSINESS GROWTH OF MANUFACTURING COMPANIES IN NIGERIA

Abstract

This study examined the impact of retained earnings on the business growth of manufacturing companies in Nigeria. The persistent challenges of limited access to external finance, high borrowing costs, and economic instability have increased the reliance of manufacturing firms on internally generated funds, particularly retained earnings, as a major source of financing growth and expansion. Despite this reliance, empirical evidence on the extent to which retained earnings contribute to business growth remains mixed and inconclusive. The study adopted an ex-post facto research design using panel data extracted from 30 selected manufacturing companies across the six geopolitical zones of Nigeria over a ten-year period (2015–2024). Data were obtained from audited financial statements and analyzed using descriptive statistics, correlation analysis, and panel regression techniques, including fixed effect estimation. The findings revealed that retained earnings have a positive and statistically significant effect on business growth of manufacturing companies in Nigeria. Firm size was also found to significantly influence business growth, indicating that larger firms tend to utilize retained earnings more effectively for expansion and operational improvement. The study further established that retained earnings explain a substantial proportion of variation in business growth among manufacturing firms. The study concluded that retained earnings remain a critical internal financing source for enhancing business growth in the Nigerian manufacturing sector, although their effectiveness depends on managerial efficiency and reinvestment decisions.