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Volume 13 Issue 3, July-September 2025 

ISSN: 2836-9416 

Impact Factor: 6.41 

Journal Homepage: https://americaserial.com/Journals/index.php/ARJEFM 

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38 | P a g e  

GREEN FINANCIAL MANAGEMENT PRACTICE AND 

CORPORATE FINANCIAL PERFORMANCE IN NIGERIA 
 

Nwachukwu Basilia Chiamaka (PhD) and Odo John Onyemaechi (Ph.D) 
Department of Accountancy, Godfrey Okoye University, Enugu 

DOI: https://doi.org/10.5281/zenodo.15878435 

 

Abstract: The study examined the effect of Green Financial Management Practice on Corporate 

Financial Performance in Nigeria. The specific objectives are to; examine the effect of loan loss provision 

on the financial performance in Nigeria and evaluate the effect of green bonds on the financial performance 

in Nigeria. An ex-post factor research design was adopted for the study. The data was collected from the 

annual account statement and corporate financial reporting listed in the Nigeria Exchange Group. 

The data collected was analyzed using a Panel data analysis. The results reveal that Loan loss provision has 

a significant effect on financial performance with a coefficient of 1025.15 (0.006). While Green bonds have 

no significant effect on the financial performance -813.624 (0.617) in Nigeria. The study concludes that 

Green Financial Management Practice has a significant effect on Corporate Financial Performance 

in Nigeria. The study recommended among others that corporations should prioritize the establishment 

and maintenance of robust loan loss provisioning frameworks. This will not only mitigate financial 

risks but also contribute to improved financial performance.  

Keywords: Corporate, Financial, Management, Practice, Performance 

 

1.1 Introduction 

Green Financial Management Practice (GFMP) is a strategic approach that integrates environmental 

sustainability into financial decision-making (Srivastava et al 2022). It involves adopting eco-friendly 

investment strategies, sustainable budgeting, and responsible resource allocation to minimize 

environmental impact while ensuring long-term financial stability. GFMP encompasses various 

practices such as green investments, carbon footprint reduction, energy-efficient cost management, 

and adherence to environmental regulations (Tien, et al 2020). As businesses face increasing pressure 

from stakeholders, regulators, and consumers to operate sustainably, green financial management has 

emerged as a crucial tool for achieving both financial and environmental objectives (Srivastava et al 

2022). Companies that embrace GFMP can benefit from reduced operational costs, enhanced corporate 

reputation, and improved access to green financing opportunities. Additionally, it helps mitigate risks 

associated with environmental challenges, regulatory non-compliance, and shifting market 

expectations. The adoption of GFMP reflects a broader shift towards sustainable corporate governance, 

where financial strategies are aligned with environmental responsibility (Park, and Kim, 2020).   

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American Research Journal of Economics, Finance and Management  
Volume 13 Issue 3, July-September 2025 

ISSN: 2836-9416 

Impact Factor: 6.41 

Journal Homepage: https://americaserial.com/Journals/index.php/ARJEFM 

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As organizations strive to balance profitability with sustainability, green financial management plays a 

vital role in shaping a resilient and competitive business landscape. The effect of GFMP on corporate 

financial performance has become a critical area of study, as companies seek to balance sustainability 

with profitability (Meng, and Shaikh, 2023). While some argue that green investments and sustainable 

financial strategies lead to cost savings, improved operational efficiency, and increased investor 

confidence, others highlight the potential financial burden associated with adopting eco-friendly 

initiatives (Küçükbay, & Sürücü. 2019). Understanding the relationship between green financial 

management and financial performance is essential for businesses aiming to achieve both economic 

success and environmental sustainability. 

In Nigeria, where environmental challenges such as pollution, deforestation, and climate change pose 

significant economic and social risks, the role of green financial management in corporate financial 

performance has become increasingly relevant (Srivastava et al 2022). Companies that embrace GFMP 

can potentially achieve cost savings through energy efficiency, attract environmentally conscious 

investors, and comply with evolving regulatory frameworks, all of which may contribute to improved 

financial performance (Meng, and Shaikh, 2023). However, the extent of this impact remains a subject 

of debate, as firms must navigate the balance between the initial costs of green investments and their 

long-term financial benefits. 

This study explores the effect of green financial management practices on corporate financial 

performance in Nigeria, assessing whether firms that adopt sustainability-driven financial strategies 

experience improved profitability, efficiency, and competitive advantage. By examining key financial 

indicators and case studies of Nigerian firms implementing GFMP, this research aims to provide 

insights into the potential benefits and challenges of integrating sustainability into corporate financial 

management. 

1.2 Statement of the Problem 

The growing emphasis on environmental sustainability has led businesses to adopt Green Financial 

Management Practices (GFMP) as a means of integrating ecological responsibility into financial 

decision-making. In Nigeria, where environmental challenges such as pollution, deforestation, and 

climate change pose significant risks, companies are increasingly pressured to implement sustainable 

financial strategies. However, the impact of GFMP on corporate financial performance remains 

uncertain, with firms facing challenges in balancing the costs of green investments with potential 

financial benefits. 

While some studies suggest that adopting green financial practices can lead to cost savings, enhanced 

corporate reputation, regulatory compliance, and increased investor confidence, others argue that the 

initial costs and operational adjustments required may negatively affect profitability, especially in 

developing economies like Nigeria. Many Nigerian firms struggle with limited access to green financing, 

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American Research Journal of Economics, Finance and Management  
Volume 13 Issue 3, July-September 2025 

ISSN: 2836-9416 

Impact Factor: 6.41 

Journal Homepage: https://americaserial.com/Journals/index.php/ARJEFM 

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40 | P a g e  

regulatory inconsistencies, and inadequate infrastructure to support sustainability initiatives, raising 

concerns about the feasibility and effectiveness of GFMP in enhancing financial performance. 

Despite the growing interest in sustainability-driven financial strategies, there is a lack of empirical 

evidence on the direct relationship between GFMP and corporate financial performance in the Nigerian 

business landscape. This study aims to bridge this gap by examining whether green financial 

management practices positively or negatively impact key financial performance indicators such as 

profitability, return on investment, and market competitiveness. Understanding this relationship is 

crucial for businesses, policymakers, and investors seeking to align financial growth with sustainability 

goals in Nigeria’s evolving economic environment. 

1.3 Objective of the Study 

The main objective of the study is to examine the effect of Green Financial Management Practice on 

Corporate Financial Performance in Nigeria. The specific objectives are to; 

i. Examine the effect of loan loss provision on the financial performance in Nigeria 

ii. Evaluate the effect of green bonds on the financial performance in Nigeria 

1.4 Hypothesis of the study  

i. Loan loss provision has no significant effect on the financial performance in Nigeria. 

ii. Green bonds have no significant effect on the financial performance in Nigeria. 

2.0 Review of Related Literature 

2.1 Conceptual Framework 

Green Financial Management 

Green financial management, also known as sustainable finance, is a rapidly growing field in the 

financial industry. It aims to promote environmentally friendly practices and investments while also 

considering the financial risks and opportunities associated with climate change (Park and Kim, 2020). 

Green finance is a broad term that can refer to financial investments flowing into sustainable 

development projects and initiatives, environmental products, and policies that encourage the 

development of a more sustainable economy.” Green financing includes but is not limited to climate 

financing. It also includes a wider variety of other environmental goals, such as industrial pollution 

control, and water pollution (Srivastava, Dharwal, and Sharma, 2021).  

Therefore, green management can provide opportunities to reduce costs and increase revenues. Ambec 

and Lanoie (2008) point out that there are four opportunities companies can make use of to reduce 

costs (risk management and relations with external stakeholders; cost of material, energy, and services; 

cost of capital; and cost of labour) and three opportunities to increase revenues (better access to certain 

markets; differentiating products; and selling pollution-control technology) (Molina-Azorin, Claver-

Cortes, Lopez-Gamero and Tari, 2009). Green financial management refers to the integration of 

environmental, social, and governance (ESG) factors into financial decision-making processes. It 

involves the assessment of environmental risks and opportunities in investment decisions, as well as 

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American Research Journal of Economics, Finance and Management  
Volume 13 Issue 3, July-September 2025 

ISSN: 2836-9416 

Impact Factor: 6.41 

Journal Homepage: https://americaserial.com/Journals/index.php/ARJEFM 

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41 | P a g e  

the incorporation of sustainability principles into financial products and services. Green financial 

management also encompasses the measurement and reporting of ESG performance, allowing 

investors and stakeholders to make informed decisions (Meng and Shaikh, 2023). 

Loan Loss 

In the context of bank lending, loan loss recognition is an important accrual process through which 

banks recognize future expected loan losses in the current period. Banks make reserves to capture 

expected losses. Making these reserves immediately reduces bank profits and regulatory capital, which, 

in turn, can alert the board, managers, and external stakeholders to problems the bank is facing 

(Bushman, 2014). More so, timely loan loss recognition thus serves as an early warning mechanism for 

problem loans, including those that arise from lending corruption. As a result, the corrupt bank 

personnel have less time or opportunity to conceal and/or escape with the gains from corruption. In 

anticipation of the sequence of events that could be triggered by earlier loan loss recognition, loan 

officers are more likely to refrain from lending corruption at loan origination (Akins, Dou, and Ng, 

2016). Also, timely loan loss recognition is linked to a greater willingness to lend during a financial 

crisis because the earlier recognition of credit loss means less credit loss has to be recognized during 

recessionary periods when regulatory capital declines and external financial frictions increase. 

Bushman and Williams (2012) found that timely loan loss provisioning reduces excessive risk-taking. 

Loan loss provisions, an accounting item to cover credit losses, are the natural tools to be used. Proper 

recognition of credit risk and credit losses along the lending cycle will enhance the soundness of each 

bank as well as that of the banking system, helping to curb procyclicality in lending. There is nothing 

more procyclical than a badly managed bank (Caruana, 2005). Therefore, loan loss provisions that 

account for the credit risk increase in the upturn can help to cope with the potential damage that lending 

cycles can inflict on the real economy, the growth potential, and the level of employment and welfare of 

any society. Such provisions, which are sometimes referred to as dynamic, statistical, or countercyclical 

loan loss provisions, merit attention from regulators and supervisors as a tool to enhance financial 

stability (Saurina, 2009). 

Next, we focus on the fact that banks that are more timely in loan loss recognition and that maintain 

higher loss reserves are typically considered prudent and more prepared for economic shocks (Beatty 

and Liao 2014). From an accounting perspective, prior loan loss reserves play an important role in 

determining the amount of loan loss provisions in the current period. In practice, loan loss provisions 

for a specific accounting period are typically not directly estimated, and two steps are usually taken to 

arrive at an estimated number. First, bank managers estimate the total losses for all outstanding loans 

at each period end and present this number as the loan loss reserve in the balance sheet. Second, 

current-period loan loss provisions are calculated as the increase in the reserve, compared to the reserve 

at the prior period end, and adjusted for net charge-offs. Hence banks are expected to make fewer loan 

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American Research Journal of Economics, Finance and Management  
Volume 13 Issue 3, July-September 2025 

ISSN: 2836-9416 

Impact Factor: 6.41 

Journal Homepage: https://americaserial.com/Journals/index.php/ARJEFM 

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loss provisions in times of higher policy uncertainty when they have already accrued more loan losses 

in previous periods (Ng, Saffar, and Zhang, 2020). 

Green Bonds 

As innovative financial instruments, green bonds provide an opportunity to tap into new pools of 

private capital to finance green projects (EY 2018). The term ‘green bonds’ refers to bonds whose 

proceeds are used to finance environmentally friendly projects (Mercer, 2015), such as renewables, 

water and energy efficiency, bioenergy, and low-carbon transports (Campiglio, 2016). The term “green 

bond” is typically used to indicate a bond that supports climate change or other environmental projects. 

Most of the green bonds issued to date have focused on climate change projects. Some green bonds also 

include consideration of other environmental (Markandya, Galarraga, and Rubbelke, 2017). Green 

bonds, that is, asset-backed securities, have turned out to be an advanced tool for debt finance. The 

basic number of green bonds issued is related to international development banks (European 

Investment Bank, World Bank, European Bank of Reconstruction and Development (EBRD), and 

International Finance Corporation (IFC)) as well as major corporations and state and municipal entities 

(Andreeva, Vovchenko, Ivanova and Kostoglodova, 2018). 

As such, green bonds are of significant importance to both investors and policymakers. On one hand, 

governments need access to affordable and reliable financial resources to fulfill their commitment 

under the 2015 Paris Agreement, which aims to hold the increase in the global average temperature to 

well below 2° Celsius above pre-industrial levels (United Nations, 2015). On the other hand, investors 

are increasingly encouraged to adapt their business models to create not only financial value but also 

social and environmental value (Schoenmaker, 2017). During the 2008 financial crisis, green bonds 

were a concept of limited interest to investors (United Nations Secretary-General 2015), since 

environmental projects were deemed risky and non-profitable by traditional investors (Wharthon, 

2015). Surprisingly, there has been an exponential growth in green bond issuance since then, 

attributable to increased awareness from traditional investors about the benefits of green investments 

(Shishlov, Morel, and Cochran 2016) and the potential impacts of climate change on financial assets 

(Caldecott 2017). 

Investors’ appetite for green bonds has therefore grown rapidly (Pham 2016), as they realize that 

climate change is a new investment return variable, that deserves significant attention (Mercer 2015). 

Many investors, especially those in the carbon-intensive sectors of the economy, have now become very 

reactive to climate-related technologies, such as carbon capture and sequestration (CCS). More 

importantly, an increasing number of investors began to incorporate climate change risk assessments 

into their investment strategies (Byrd and Cooperman 2018). 

Green bonds provide an opportunity for long-term and sustainable infrastructure financing. The fact 

that green bonds are ranked pari passu with conventional bonds in terms of yield to maturity is to some 

extent a key element that boosts investor’s appetite for green bonds. Furthermore, investors have 

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American Research Journal of Economics, Finance and Management  
Volume 13 Issue 3, July-September 2025 

ISSN: 2836-9416 

Impact Factor: 6.41 

Journal Homepage: https://americaserial.com/Journals/index.php/ARJEFM 

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realized that investing in environment-related projects does not necessarily jeopardize the return on 

investment (Banga, 2019). The main difference between green bonds and conventional bonds is that 

unlike the latter the proceeds of the former must be entirely allocated for environmentally-friendly 

projects (CBI and HSBC 2017). Moreover, green bonds often require a more complex-issuance process, 

since their deal typically involves at least three market players, whose roles are discussed in the next 

subsection (Banga, 2019). 

Corporate Financial Performance 

To achieve the goal of market capitalization maximization, sustainable development focuses on 

preserving society and the environment for the benefit of future generations. Even with the growing 

awareness of corporate sustainable development, there are still concerns about how to quantify the 

impact of sustainable development on corporate business performance, particularly about the CFP. For 

instance, Küçükbay and Sürücü (2019) presented a novel approach to measuring corporate business 

performance that includes two environmental, four social, and four economic and financial sub-criteria. 

We are focusing on the financial component of corporate business success in this area, as shown by a 

unique system or collection of indicators. Numerous indicators are available in the financial literature 

that quantify CFP; however, the two primary groups of indicators that are most frequently employed in 

research studies are as follows: There are two types of indicators: (a) short-term, linked to accounting 

value ratios and profitability coefficients; and (b) long-term, linked to market value factors, or asset 

growth factors (Tien, Anh and Ngoc, 2020).  

Return on equity (ROE) and return on assets (ROA) are the two most often employed profit objectives. 

One might utilize net profit, either before or after taxes, to compute these two indexes (Tian & Estrin, 

2008). Researchers, however, contend that the most appropriate term to employ is pre-tax profit after 

interest, which is defined as profits before interest and taxes, or after interest, depreciation, and 

amortization, which is defined as earnings before interest, taxes, depreciation, and amortization. There 

will be many financial repercussions from this decision. The disparity in profit computation techniques 

might perhaps be attributed to limitations in the database. Many times, different calculations will be 

made by certain researchers due to the incompleteness of the database (Tien, Anh, and Ngoc, 2020).  

Financial Performance 

Financial performance refers to the extent to which a firm increases its effectiveness and efficiency in 

transforming the usage of its assets into profits. According to Nzewi (2015), maximization of 

shareholders’ wealth, of which profit maximization is one aspect, is the ultimate goal of organizations 

such that all the policies designed and activities performed are meant to realize this grand objective. 

However, this does not mean that companies have no other goals. Financial performance measures the 

extent of profitability of a firm. Profit is the excess of revenue generated over the cost in the production 

process within a definite period (Karim, Kamruzzaman & Kamruzzaman, 2018).  

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ISSN: 2836-9416 

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It means the excess of revenue over net operating expenses (Nworie & Ofoje, 2022). In line with the 

submission of Omari (2020), financial performance means a firm’s ability to generate a satisfactory 

return on invested capital through which shareholders are happy and prospective investors are 

motivated to invest. Relatedly, shareholders are always interested in the ability of the company to use 

their limited assets efficiently and effectively to produce the desired profits. Return is judged by 

assessing earnings relative to the level and sources of financing in that a profit is not made when the 

operating expenses are not yet covered (Kajola, Sanyaolu, Alao & Ojunrongbe, 2020). Financial 

performance evaluates the effectiveness and efficiency with which equipment, plant, and current assets 

are transformed into profits (Nworie & Mba, 2022). Financial performance could be determined 

through Gross Profit Margin, Return on Assets (ROA), Return on Equity (ROE), Net Profit Margin 

(NMP), and Profit after Tax (PAT) (Wuave, Yua & Mkuma, 2020).  

2.2 Theoretical Review 

Operating Cycle Theory 

The theory postulates that incorporating working capital measures such as accounts receivable and 

inventory turnover into an operating cycle concept provides an appropriate view of liquidity 

management than does the use of traditional measures such as current and acid-test ratios. Weston 

(1979) noted that the additional liquidity measures recognize that life expectancies of some working 

capital components depend on the extent to which production; sales and collection are non-

instantaneous and unsynchronized. Accounts receivable turnover indicates the speed with which firm 

receivables are converted to cash. A change in the credit and collection policy of a firm would influence 

the outstanding accounts receivable balance maintained relative to the firm’s annual sales. Where firms 

grant more liberal terms to their customers, larger and potentially less liquid current investments in 

receivables arise. If the sales do not increase relative to the increase in receivables then liquidity would 

be affected as lower receivables turnover and extended collection periods would be observed. 

Inventory turnover indicates the frequency with which firms convert their stock of raw materials, work 

in progress, and finished goods into product sales. Purchasing, production scheduling and distribution 

strategies adopted by firms require more inventory commitments about anticipated sales. This 

produces a lower turnover ratio which in turn reflects a longer and potentially less liquid inventory 

holding period. If firms do not alter the payment practices with trade creditors and their access to short-

term financing, decisions creating longer or less liquid holding periods will arise and lead to a higher 

current ratio. A higher current ratio implies that firms have accumulated current assets such as 

inventory that lie idle and therefore do not generate profits (Weston 1979). It is further argued that the 

length of the firm's operating cycle is based on the cumulative days per turnover for receivables and 

inventory investments. Incorporating the two measures of working capital measures provides an 

arguably realistic approach to a firm’s liquidity position. However, the operating cycle concept fails as 

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American Research Journal of Economics, Finance and Management  
Volume 13 Issue 3, July-September 2025 

ISSN: 2836-9416 

Impact Factor: 6.41 

Journal Homepage: https://americaserial.com/Journals/index.php/ARJEFM 

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a cash flow measure since it doesn’t consider the liquidity requirements imposed on a firm by the 

dimension of its current liability commitments. 

Option Pricing Theory  

The capital asset pricing model provides a positive theory for the determination of expected returns and 

thus links today’s asset price with expected future payoffs. In addition, many important corporate policy 

problems require knowledge of the valuation of assets which, like call options, have payoffs that are 

contingent on the value of another asset. Black/Scholes (1973) provides a key to this problem in their 

solution to the call option valuation problem. An American call option gives the holder the right to buy 

a stock at a specific exercise price at any time before a specified exercise date. They note that a risk-free 

position can be maintained by a hedge between an option and its stock when the hedge can be adjusted 

continuously through time. To avoid opportunities for riskless arbitrage profits, the return to the hedge 

must equal the market risk-free rate; this condition yields an expression for the equilibrium call price.   

Black/Scholes note that if the firm’s cash flow distribution is fixed, the option pricing analysis can be 

used to value other contingent claims such as the equity and debt of a levered firm. In this view, the 

equity of a levered firm is a call option on the total value of the firm’s assets with an exercise price equal 

to the face value of the debt and an expiration date equal to the maturity date of the debt. The 

Black/Scholes analysis yields a valuation model for the firm’s equity and debt. An increase in the value 

of the firm’s assets increases the expected payoffs to the equity and increases the coverage on the debt, 

increasing the current value of both. An increase in the face value of the debt increases the debtholder’s 

claim on the firm’s assets, thus increasing the value of the debt, and since the stockholders are residual 

claimants, reduces the current value of the equity; An increase in the time to repayment of the debt or 

in the riskless rate lowers the present value of the debt and increases the market value of the equity. An 

increase in the variance rate or in the time to maturity increases the dispersion of possible values of the 

firm at the maturity date of the debt. Since the debt holders have the maximum payment that they can 

receive, an increase in dispersion increases the probability of default, lowering the value of the debt and 

increasing the value of the equity (Jensen and Smith, 2001).  

Empirical Review 

Pool, De Haan, and Jacobs (2015) examined loan loss provisioning, bank credit, and the real economy 

on how credit risk affects bank lending and the business cycle. We estimate a panel Vector 

Autoregression model for an unbalanced sample of 12 OECD countries over the past two to three 

decades, consisting of the output gap, inflation, the short-term interest rate, bank lending, as well as 

loan loss provisioning by banks (as a proxy for credit risk). Our main findings are that: (i) bank lending 

and loan loss provisioning are important drivers of business cycle fluctuations, (ii) loan loss 

provisioning decreases in relative terms as bank lending increases, and (iii) bank lending is primarily 

affected by output fluctuations. 

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Akins, Dou, and Ng (2016) examined the effect of country-level timely loan loss recognition by banks 

on lending corruption using a unique World Bank dataset that covers more than 3,600 firms across 44 

countries. We find evidence consistent with timely loan loss recognition constraining lending 

corruption because it increases the likelihood of problem loans being uncovered earlier. In further 

analysis, we find timely loan loss recognition to be less associated with reduced corruption in countries 

where there is significant government ownership in the banking system and deposit insurance schemes. 

This evidence is consistent with timely loan loss recognition being less of a deterrent to lending 

corruption when banks are less disciplined by their capital providers. 

Banga (2018) carried out a study that examined the potential of green bonds in mobilizing adaptation 

and mitigation finance for developing countries. Building upon a theoretical approach, it identifies the 

key drivers of the green bond market over the last few years and the barriers that impede its 

appropriation by developing countries. The results suggest that the rise of green bonds is a fact in 

developed and emerging countries, backed by an increasing climate awareness from investors. 

However, in developing countries, the market remains incipient, and its full potential seems to be 

underappreciated. 

Hachenberg and Schiereck (2018) conducted a study to answer the question, Are green bonds priced 

differently from conventional bonds? However, it is an open question whether this new asset class is 

also offering attractive risk-return profiles compared to conventional (non-green) bonds. To address 

this question, we match daily i-spreads of green-labeled and similar non-green-labeled bonds and look 

at their pricing differentials. We find that rating classes AA–BBB of green bonds as well as the full 

sample trade marginally tighter for the respective period compared to non-green bonds of the same 

issuers. Furthermore, financial and corporate green bonds trade tighter than their comparable non-

green bonds, and government-related bonds on the other hand trade marginally wider. Issue size, 

maturity, and currency do not have a significant influence on differences in pricing but industry and 

ESG rating. 

3. Methodology 

The study adopts an ex-post factor research design. The data collected for this study is sourced from 

corporate financial reporting under the Nigeria Exchange Group. The estimated pooled OLS equation 

was formulated similarly to the main regression equation. The pooled OLS estimation process involved 

minimizing the sum of squared residuals. The parameters were estimated simultaneously to achieve 

the lowest possible sum of squared residuals (Wooldridge, 2012). The estimated pooled OLS regression 

is presented as follows: 

�̂� = �̂�0 + �̂�1𝑥1 +  �̂�2𝑥2 + �̂�3𝑥3 + ⋯ +  �̂�𝑘𝑥𝑘 … … … … … … … … … . (1) 

Where �̂�0is the estimate of constant, and �̂�𝑖 are the estimates of slopes corresponding to each 

explanatory variable? 

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American Research Journal of Economics, Finance and Management  
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ISSN: 2836-9416 

Impact Factor: 6.41 

Journal Homepage: https://americaserial.com/Journals/index.php/ARJEFM 

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Panel data incorporates both cross-sectional and time-series dimensions, which may introduce cross-

sectional effects, time effects, or both. These effects can be modeled using either fixed effects or random 

effects. In a fixed effects model, it is assumed that cross-sectional or time-series intercepts vary, 

whereas a random effects model focuses on how error variances change. Estimation in a fixed effects 

model can be performed using two approaches: the within effect and the between effect estimates. 

While these methods yield different parameter estimates, they produce identical slopes for non-dummy 

independent variables (Wooldridge, 2012). The between-effect estimation is further divided into 

between-time and between-group estimators. In a random effects model, the error variance is analyzed 

concerning cross-sections and/or time series. This model is particularly suitable for cases where 

individuals (cross-sectional units) are randomly selected from a larger population. Two estimators are 

available for the random effects model: the Generalized Least Squares (GLS) method, used when the 

variance-covariance matrix is known, and the Feasible Generalized Least Squares (FGLS) method, 

which estimates the variance structure. Both fixed and random effects models allow for one-way and 

two-way analyses. A one-way analysis considers only cross-sectional variables, while a two-way analysis 

accounts for both cross-sectional and time-series data. Table 1 presents the equations for the fixed and 

random effects models under the one-way approach, which will be adopted for this study. 

Table 1: Fixed and Random effect panel data models 

Terms  Fixed effect model Random effect Model 

Equation One-way:   𝑦𝑖𝑡 = (𝛼 + µ𝑖) + 𝑥𝑖𝑡𝜋 +

∈𝑖𝑡 

One-way:   𝑦𝑖𝑡 = 𝛼 + 𝑥𝑖𝑡𝜋 + (µ𝑖 +∈𝑖𝑡) 

Intercept  Differing across cross-

sectional/time series 

Constant 

Error variance Constant Differing across cross-sectional/time series 

Slope Constant Constant 

Estimation Between, Within FGLS, GLS 

Were 

𝑦𝑖𝑡 = dependent variable 

𝑥𝑖𝑡 = Independent variable 

∈𝑖𝑡 = zero mean random disturbance  

µ𝑖 = unobserved individual-specific effect 

𝛼 = Model coefficient 

Referring to Table 1, fixed effects models account for individual-specific effects µ𝑖 by allowing variations 

in intercepts while maintaining a consistent slope and constant variances across cross-sections. Since 

these individual-specific effects remain unchanged over time, µ𝑖  can be correlated with other 

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independent variables (Wooldridge, 2009). In contrast, random effects models assume that both the 

intercept and slope remain constant, treating individual-specific effects as part of the error variance. 

3.2 Panel Unit Root Test 

To study the stationary of variables we apply Levin, Lin, and Chu (LLC) (e.g., Levin et al., 2002). Im, 

Pesaran, and Shin (IPS) (e.g., Im et al., 2003), are mentioned by Madala and Wu (1999) (e.g., Mandala 

and Shaowen, 1999). These tests are among the most significant unit root tests for panel data, while 

different approaches may yield inconsistent findings. The null hypothesis in each of these tests suggests 

that there is a unit root. 

3.2.1 Result of panel unit root test 

The results of the panel unit root tests are displayed in Table 2. Two test statistics are calculated for 

each variable. The results show that all the variables are stationary in the level form. 

Table 2: Panel Unit Root Test 

 LLC IPS INTERGRATION 

ORDER 

Comments 

LLP -3.4219 

[0.0332] 

-8.0231 

[0.0000] 

I (0) Stationary at the 

level stage  

GRB -2.6849 

[0.0021] 

-8.9475 

[0.0000] 

I (0) Stationary at the 

level stage 

ROA -3.9482 

[0.0001] 

-5.21567 

[0.0000] 

I (0) Stationary at the 

level stage 

LLP = Loan loss provision, GRB = Green Bond, ROA = Return on assets  

3.2.2 Correlation 

The correlation statistic reveals how linearly related two variables are (meaning they change together 

at a constant rate). It's a common strategy for explaining simple relationships without specifying cause 

and effect. The sample correlation coefficient quantifies the magnitude of the link; however, correlation 

cannot test for the existence or impact of any other variables outside the two under examination. 

Additionally, correlation reveals nothing about causation and effect. As a result, for the variable 

employed in this inquiry, we have produced the correlation table below. 

Table 3: Bivariate Correlation of all the variables 

Correlation LLP GRB ROA 

LLP 1   

GRB -0.5769 1  

ROA 0.6825 -

0.9984 

1 

LLP = Loan loss provision, GRB = Green Bond, ROA = Return on assets  

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The above table 4 shows the bivariate correlation of the variables under study, it’s obvious that there is 

a degree of relationship that exists between the ROA, LLP, and GRB. 

 

 

 

 

Table 4: Model Summary 

 Model 1 (ROA) 

 Fixed Effect Random Effect Pooled OLS 

LLP 16579.81 

[0.000] * 

1025.15 

[0.006] * 

1719.091 

[0.005] 

GRB 721.4312 

[0.3012] 

-813.624 

[0.617] 

-764.023 

[0.713] 

Table 4 clearly states the coefficients and probability values for all the predictor variables for the 

different models. Each model represents a different dependent variable of interest to the researcher; 

the table also presented the fixed/random effect model as well as the pooled regression. The result 

indicates that for the models only loan loss provision (LLP) with a coefficient of 1025.15 (0.006) was 

found to be statistically significant at a 5% level of significance.  The result of the Green bond states that 

at a 5% level of significance, the green bond has no significant effect on return on assets having a 

coefficient of -813.624 (0.617). Based on the selection criteria for choosing the model between the fixed 

effect and random effect we made use of the Hausman test in the below table 5 

Table 5: Hausman Test 

Model Test cross-section 

random effect 

  

 ROA 

1 Test Summary Chi-Sq. 

Statistic 

Prob 

Cross-section random 13.43 0.0623 

It’s notable from Table 5 above that we accept the null hypothesis of the Hausman test and conclude 

that the best regression model to estimate the unobserved effect in models 1 and 2 is the random effect 

model rather than the fixed effect model.  

5. Conclusion 

In conclusion, the study of Green Financial Management Practices and their impact on Corporate 

Financial Performance in Nigeria reveals critical insights. Loan Loss Provisions play a significant role 

in enhancing financial performance, highlighting the importance of effective risk management within 

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the corporate sector. This suggests that firms that prioritize prudent provisioning are better positioned 

to navigate financial uncertainties and maintain robust performance metrics. Conversely, the analysis 

indicates that Green Bonds do not exhibit a significant effect on corporate financial performance in 

Nigeria. This may reflect the nascent stage of green financing in the region, where market awareness 

and investor confidence in such instruments are still developing. As the green finance landscape 

evolves, companies need to explore innovative approaches to integrate sustainability into their financial 

frameworks effectively. 

Overall, while Loan Loss Provisions are critical for financial stability and performance, the limited 

impact of Green Bonds underscores the need for a more supportive regulatory environment and 

enhanced market education to leverage green finance's full potential in Nigeria. The study concludes 

that Green Financial Management Practice has a significant effect on Corporate Financial Performance 

in Nigeria. 

Recommendations 

Based on the findings regarding the effect of Green Financial Management Practices on Corporate 

Financial Performance in Nigeria, the following recommendations are proposed: 

i. Corporations should prioritize the establishment and maintenance of robust loan loss 

provisioning frameworks. This will not only mitigate financial risks but also contribute to improved 

financial performance. Regular training and updates on best practices in risk management should be 

implemented to ensure that financial teams are well-equipped to handle loan provisions effectively. 

ii. To improve the impact of Green Bonds on corporate financial performance, it is essential to 

enhance awareness and understanding of these instruments among corporate managers and investors. 

Educational programs and workshops can help stakeholders recognize the potential benefits and 

opportunities presented by green financing. 

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