Abstrakt

Financial leverage and asset growth: Evidence from non-financial firms in Nigeria.

Kenn-Ndubuisi, Juliet Ifechi, Onyema JI

This study analysed the relationship between financial leverage and asset growth of 80 nonfinancial firms quoted on the Nigerian Stock Exchange over the period of 2000 to 2015. Financial leverage measures used include the total debt to capital ratio, debt to equity ratio, cost of debt, debt to asset ratio and long term debt to capital ratios. The panel regression analysis model which includes the pooled regression model, fixed effect model and the random effect model was used for data analysis with the Hausman Test for appropriate model choice. The result states that there is a significant relationship with all the financial leverage variables except the cost of debt. Asset growth also shows a significant negative relationship with all the control variables such as the interest rate, inflation rate and exchange rates. We therefore recommend that quoted firms should employ financial leverage in such a way that the cost of debt does not outweigh its benefits as proposed by the trade off theory and also that financial decisions should be made in consonance with the prevailing inflation, interest and exchange rates by the management of quoted firms in Nigeria.