Financial Leverage and Financial Performance of Quoted Firms in Nigeria: Evidence from Oil and Gas and Agriculture Sectors (original) (raw)
2024, Journal of Accounting and Financial Management
This study investigated the relationship between financial leverage and financial performance of fIrms in Nigeria: Evidence from the oil and gas and agriculture sectors. The specific aims of the study are to; analyse the effect of debt to asset ratio on financial performance of manufacturing companies; examine the effect of interest coverage ratio on financial performance of manufacturing companies; and establish the effect of debt-equity ratio on financial performance of manufacturing companies. This study adopted a multistage sample technique, and a simple random technique was employed to choose the oil and gas sector and agriculture sectors, while purposive sampling was employed to select 10 firms from the two sectors. The study employed descriptive and inferential analysis. The study made use of panel secondary data, which were gathered from the financial reports of the selected firms for the period of 10 years spanning from 2013 to 2022. Data were analysed with the use of correlation analysis and panel regression estimation procedures. The Hausman test was conducted, and the result found that the fixed effect estimation technique was the most appropriate and consistent for the study. The result of the fixed estimation technique then revealed a regression coefficient of DER of 0.3237 and a t-statistical value of 1.4375 at a p value of 0.0057 (p > 0.05). This indicates that the debt-to-equity ratio has a significant effect on the financial performance of firms in Nigeria. The study further revealed the regression coefficient of ICR of-0.1397 and a t-statistical value of 2.8473 at a p value of 0.0730 (p > 0.05). The study also showed that the regression coefficient of DAR of 0.1027 and a tstatistical value of 3.1283 at a p value of 0.0000 (p < 0.05) indicate that the relationship between DAR and ROI was positive and significant. The study concluded that the debt-to-equity ratio and debt-to-assets ratio have a significant effect on the financial performance of firms in Nigeria, while the interest coverage ratio has a negative influence on the ROI of the selected firms. Hence, this study recommended among others that manufacturing firms should take on the strategy of reducing their debt and increasing their equity so as to maintain a good debt-to-equity ratio. The study also recommends that firms in Nigeria should always improve their interest coverage ratio by increasing earnings before interest and tax (EBIT) and reducing finance costs and even interest expenses so as to maintain a higher interest coverage ratio.
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