Financial Leverage and its Effect on Corporate Performance of Firms in Nigeria (1999-2016)

Abstract

The study examined financial leverage and its effect on corporate performance of firms in Nigeria, for the period (1999-2016). Secondary data were used and collected from the annual reports and accounts of various issues. The study used long-term-debt as dependent variable to measure financial leverage; whereas, return on asset and return on equity were used as the explanatory variable to measure corporate performance of firms in Nigeria. Hypotheses were formulated and tested using Ordinary Least Square (OLS) econometrics technique. The study revealed that return on asset had a positive significant effect on long-term debt of firms in Nigeria.  Return on equity had a positive significant effect on long-term debt of firms in Nigeria. The coefficient of determination indicated that about 36% of the variations in long-term-debt can be explained by changes in corporate performance variables in Nigeria. The study also concluded that financial leverage has a significant influence on corporate performance of firms in Nigeria. The study recommended that there should be an effective management of long-term debts and other working capital component in firm’s balance sheet. Again, quoted firms in Nigeria should reduce the debt levels in their capital structures so as to enhance positive performance to the interest of shareholders. Furthermore, the government should create an enabling business environment so that business can thrive and this will increase firm’s performance in Nigeria.

Keywords: Financial, leverage, effect, corporate performance, firms, Nigeria