FINANCIAL LEVERAGE AND PERFORMANCE OF MANUFACTURING FIRMS IN NIGERIA
Abstract
The trade-off theory explains the importance of an optimal capital structure in every firm. This study examined the relationship between financial leverage and performance of twelve listed manufacturing firms in the Nigerian stock market for a twelve-year period (2011–2022). The study modelled return on assets (ROA) as the dependent variable while short-term debt as a percentage of total debt, long-term debt as a percentage of total debt, firm growth rate, asset tangibility, firm size, market leverage, and market to book ratio served as independent variables. Employing random effect panel regression after the Hausman specification test, the study found a positive and significant relationship between short-term debt as a percentage of total debt and return on assets. Market leverage had a negative but significant relationship with ROA. Other variables exerted insignificant effects. The study concludes that manufacturing firms should place more emphasis on debt structure rather than overall capital structure, as short-term debt was the most used source of finance.
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