Financial Leverage and Firm Performance of Listed Firms in the Nigerian Stock Exchange
Muritala. Abdulafiz. O *
Aradel Energy Limited, Nigeria.
Arowolo. Oluwafemi V.
Robert Gordon University Aberdeen, Scotland, United Kingdom.
*Author to whom correspondence should be addressed.
Abstract
The presence of scarcity of financial resources has made corporate organization to incorporate debt into their capital structure despite the financial risk inherent in including debt in the capital structure of a corporate entity. This study examines into the effect of financial leverage on firm performance of listed firms in the Nigerian Stock Exchange. The panel data was sourced from the period of 2020 to 2024, from audited financial statement of listed consumer goods companies in Nigeria. The panel regression analysis was employed to determine the relationship between measures of financial leverage and firm performance. The findings reveals that debt ratio has negative effect on share price at (-3.56; p<0.05) while equity ratio has a negative significant impact on share price at (-1.79; p<0.05). Debt-to-equity ratio and debt ratio has positive significant effect on adjusted risk adjusted return on capital at (5.43; p<0.05) and (10.33; p<0.05) while equity ratio has negative significant effect on adjusted risk adjusted return on capital at (-5.68; p<0.05). It is therefore recommended that consumer goods companies should carefully manage their debt-to-equity ratio to maximize risk-adjusted returns while maintaining financial stability.
Keywords: Debt-to-equity ratio, debt ratio, equity ratio, share price and adjusted risk adjusted return on capital