Effect of Financial Leverage on Company Performance: A Study of Selected Quoted Companies in Nigeria
Anetoh, John Chidume
Department of Marketing
Chukwuemeka Odumegwu Ojukwu University, Igbariam Campus, Nigeria
E-mail: anetohjohn@yahoo.com
&
Anetoh, Vivian Chioma
Department of Accountancy
Chukwuemeka Odumegwu Ojukwu University, Igbariam Campus, Nigeria
E-mail: anetohvivian@yahoo.com
ABSTRACT
This work examined the effect of financial leverage on company performance: A Study of selected quoted companies in Nigeria. The main objective of this work was to investigate the effect of financial leverage on company performance using selected quoted companies in Nigeria for the period 2010-2015. The specific objectives of this work were aimed at determining the extent to which debt to total asset, debt to equity ratio, short-term debt to total asset, long-term debt to total asset and the interaction of debt to total asset and debt to equity ratio have affected performance of selected quoted companies in Nigeria. Five research questions and five hypotheses were formulated to achieve the objectives of this study. Multiple Regression Analysis using Ordinary Least Square statistical techniques was used to test the fitness of the model as well as the five hypotheses formulated for this study. Secondary data were employed in this work for analysis which were collected from Nigerian Stock Exchange Fact book and financial statement of the ten selected quoted companies. Among the five hypotheses tested; null hypothesis two was accepted while null hypotheses one, three, four, five were rejected. The results revealed that debt to equity ratio has no significant effect on company performance while debt to total asset, short-term debt to total asset, long-term debt to total asset and the interaction of debt to total asset and debt to equity ratio have significant effect on company performance measured by return on equity. The major findings revealed that debt-equity ratio has no significant effect on company performance while debt ratio, short-term debt to total asset, long-term debt to total asset and the interaction of debt to total asset and debt-equity ratio have significant effect on company performance. This work therefore concludes that debt to equity ratio has not contributed to high performance of selected quoted companies in Nigeria while debt to total asset, short-term debt to total asset, long-term debt to total asset and the interaction of debt to total asset and debt to equity ratio have contributed significantly to the performance of selected quoted companies in Nigeria. The study recommends among others that an appropriate debt-equity mix should be adopted by quoted companies if they must improve their financial performance, survive and remain competitive in business.
Keywords: Financial leverage, Company performance, Quoted Companies, Nigeria
