Effect of Financial Leverage on Financial Performance of Listed Companies in Nigeria

The study investigated the effect of financial leverage on performance of listed companies in Nigeria for the period 2009-2018. Debt-equity ratio (DER), debt ratio (DR) and interest cover (IC) were adopted as proxies for financial leverage while return on assets, return on equity and return on investment were adopted as proxies of performance. Data for the study was sourced from annual reports of selected companies. To analyze the data collected, the study used the Ordinary Least Squares (OLS) panel regression technique. Findings revealed that debt-equity ratio had negative and significant effect on return on assets and an insignificant effect on return on equity and interest cover. A negative and insignificant relationship was also established between return on equity, return on investment and debt-equity ratio and interest cover. However, a positive and significant relationship was established between debt ratio and return on asset and return on investment but was insignificant for return on equity. The study recommended, among others, that financial managers can introduce debt in the financing of their operations to enjoy the benefits that debt financing offers with it potentials of improving firm financial performance. However finance managers should be mindful of excessive debt when raising capital for their business as a high debt-equity ratio undermines the performance of listed companies in Nigeria.