Does Cost of Debt Condition the Debt–Value Nexus? Quantile Regression Evidence from Nigerian Manufacturing Firms

Abstract

This paper investigates how the composition of corporate debt relates to shareholders’ wealth across the distribution of firm valuation in a high cost borrowing environment. Using a balanced panel of 43 listed Nigerian manufacturing firms from 2013 to 2023, we compare pooled Ordinary Least Squares with year effects to quantile regressions at the 25th, 50th and 75th quantiles of shareholders’ wealth. Shareholders’ wealth is proxied by market capitalisation; the key regressors are short-term and long-term interest-bearing debt ratios, with the cost of debt as a conditioning variable and profitability and firm size as controls. Interaction terms between cost of debt and debt structure are constructed from mean-centred regressors. The results show that short-term debt is positively associated with shareholders’ wealth throughout the distribution, while long-term debt is negatively associated. The cost of debt is adverse on average and most pronounced around the median quantile. Interaction terms are not statistically significant across quantiles, which suggests that, conditional on observables, the cross-quantile differences are driven largely by the level effects of debt structure and borrowing costs rather than by moderation. The findings highlight distributional heterogeneity in the debt–value nexus that is not captured by mean regressions alone and have implications for tenor policy, treasury management, investor screening and credit-market design in emerging economies.