EFFECT OF FINANCIAL LEVERAGE ON FINANCIAL PERFORMANCE OF LISTED CONSUMER GOODS FIRMS IN NIGERIA

Abstract

The study examines the effect of financial leverage on financial performance of listed consumer goods firms in Nigeria. Proxies to measure financial leverage are long-term debt and debt to equity, while the financial performance was proxied by gross profit margin. The study concentrated on the period from 2018 to 2022. Panel data was used to analyse the data sourced from the individual financial reports of the listed consumer goods firms. The sample adopted sixteen (16) listed consumer goods firms out the twenty (20) listed consumer goods firms in Nigeria due to unavailability of data. The study employed panel regression model to estimate the key relationship between financial leverage and gross profit margin. The result shows that Long-term debt had significant effect on gross profit margin of listed consumer goods firms in Nigeria, while, the result shows that debt to equity had no significant effect on gross profit margin of listed consumer goods firms in Nigeria. The study recommends the management of the consumer goods firms should critically examine the gross profit margin level before deciding the amount of debt or equity to employ to finance the firm’s investment, since debt financing is cheaper than equity financing. The study also recommends that consumer goods firms in Nigeria should consider higher percentage of long-term debt by encouraging more expansion as it will help financial manager to improve the financial performance of the firm