Empirical Insights on the Relationship between Financial Leverage and Firm Performance among Nigerian manufacturing firms

  • Festus Oladipupo Olaoye
  • Olasehinde Vincent Omodara
Keywords: performance variations, Descriptive Analysis

Abstract

The study delves into the intricate relationship between Long-Term Debt Ratio (LTDR) and Return on Assets (ROA) among Nigerian manufacturing firms, the study examine the impact of LTDR on the financial performance, specifically the ROA, of listed manufacturing firms in Nigeria.it contribute to existing literature by considering recent data, employing appropriate measures of financial leverage, and utilizing panel data methodology. It provide empirical justifications for understanding the relationship between LTDR and the financial performance of Nigerian manufacturing firms. The study's population comprises listed manufacturing firms in Nigeria, with purposive sampling ensuring representation across sub-sectors.
The research design adopts a quantitative, observational approach, utilizing panel data regression analysis. The theoretical framework considers Modigliani and Miller's (1958) proposition, accounting for market imperfections, taxes, transaction costs, and bankruptcy costs. Descriptive analysis provides an overview of the sample, revealing insights into central tendencies, variability, and distribution characteristics. Correlation analysis explores associations among variables, setting the stage for a nuanced interpretation of the LTDR-ROA relationship.
Findings indicate a positive average performance among sampled manufacturing firms, with a moderate reliance on long-term debt. Weak correlations between ROA and LTDR, industry type, firm age, and size underscore the nuanced nature of these relationships. Regression analysis suggests that an increase in long-term debt is associated with an increase in ROA, emphasizing the positive influence of strategic long-term debt utilization. Control variables contribute to performance variations, reflecting industry-specific factors, firm age, and size.
In conclusion, the study enhances our understanding of the intricate dynamics between LTDR and ROA in the Nigerian manufacturing sector. It provides empirical insights that can inform strategic financial decision-making, contributing to the resilience and performance optimization of manufacturing firms. The findings offer practical implications for financial managers, policymakers, and stakeholders, facilitating informed decision-making in a challenging economic environment.

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Published
2023-12-26