ABSTRACT

The study investigates the determinants of the impact of financial leverage on profitability of quoted manufacturing firms in Nigeria. Specifically this study examine the relationship between total debt ratio (TDR) and profitability of quoted manufacturing firms, the impact of short term debt ratio (STDR) on the profitability of quoted manufacturing firm, effect of long term debt ratio (LTDR) on the profitability of quoted manufacturing firms, and the effect of total debt-equity ratio (DER) on the profitability of quoted manufacturing firms in Nigeria using 67 quoted manufacturing firms on the Nigerian Stock Exchange out of which 32 quoted manufacturing firms formed the sample of the study  over the period 2013-2021.

This study employs a two-step dynamic GMM estimations and descriptive statistics for the empirical estimation of the model. Panel data techniques in the form of Random Effects Model and descriptive analysis in the form of mean, median, maximum, minimum and standard deviation has been applied to achieve the study’s objectives and test its hypotheses.

The major findings of the study revealed that ratio of short-term leverage, ratio of long-term leverage are related to ratio of asset turnover (ATR) indirectly. The study concludes among others that financial leverage surrogated by total leverage ratio is an important indicator of financial performance. Based on the conclusions, the following recommendations were given among others that optimal combination of both (total leverage) will reduce agency cost and strive to maximize the value of the value. It also recommended that the impact of firm age (AG) and firm growth (GRWT) is positive though not significantly related to the profitability of quoted manufacturing firm in Nigeria.