Abstrakt

Effect of financial leverage on profit growth of quoted non-financial firms in Nigeria.

Kenn Ndubuisi, Juliet I, Onyema JI

This study sets out to examine the effects of financial leverage on the profit growth in Nigeria using the total debt to capital ratio, debt to equity ratio, cost of debt, debt to asset ratio and long term debt to capital ratios as proxies for financial leverage for a sample of 80 non-financial firms quoted on the Nigerian Stock Exchange over the period of 2000 to 2015. Data were analysed using the panel data regression analysis model which includes the pooled regression model, fixed effect model and the random effect model. The choice of the appropriate model between Fixed Effect and Random Effect is made using the Hausman Test. In accordance with the research findings, we conclude that financial leverage has significant effect on the profit growth of firms in Nigeria and also that there exist a significant relationship between the inflation rate and profit growth but the relationship with the interest and exchange rates on financial leverage of quoted companies in Nigeria. The nature of the relationship differs from one another, a positive relationship was reported for the total debt to capital ratio, debt to asset ratio and long term debt to capital ratios and a negative relationship for the debt to equity ratio and the cost of debt. We therefore recommend that every company quoted in Nigeria find the mix of debt to equity capital that best suits them which can become their optimal capital structure to be able to maximize profit at minimal cost.