Collateral Requirements and Corporate Investment: Evidence from Nigerian Listed Firms (2015–2025)

Abstract

This study investigates the effect of collateral requirements on corporate investment decisions among non-financial firms quoted on the Nigerian Exchange Group over the period 2015–2025. Using a balanced panel dataset of 60 firms comprising 660 firm-year observations, the study applied a fixed effects regression model to analyze the association between collateral intensity and corporate investment while controlling for firm size, profitability, leverage, and macroeconomic conditions. The empirical findings reveal that collateral intensity exercises a negative and statistically significant result on corporate investment, indicating that stringent collateral requirements constrain firms’ access to external funding and limit investment activities. In contrast, firm size and profitability are found to positively influence investment, suggesting that larger and more financially robust firms are better positioned to undertake capital expenditures. Leverage shows a negative association with investment, consistent with the leverage overhang hypothesis, whereas economic growth positively drives investment behavior. The results support the credit rationing theory and the financial constraints framework, emphasizing the role of lending conditions in determining corporate investment decisions. The study recommends policy reforms aimed at improving credit accessibility, strengthening credit information systems, and reducing excessive collateral constraints to stimulate private sector investment and economic growth in Nigeria.