Financial Leverage And Corporate Financial Performance: Empirical Evidence From The Nigerian Paint Industry (2007 - 2018)

Abstract

             Management decisions, which represent a core function of corporate performance have stimulated the interest of many researchers, as most firms are financially leveraged from creditors to increase sales volume and higher their earnings. It is one of the major issues in corporate financial management. Key financial leverage variables that can affect corporate performance were focused upon in this study over the study period of 2007 to 2018. Six Paint industries were selected concerning the leverage variables via quasi-experimental design. The study was evaluated using econometrics and the estimation test used was the vector autoregressive model. The findings reveal Debt Ratio, Interest Coverage Ratio, Debt-to-Equity Ratio positively affected while Debt Ratio has a negative effect on Returns on Equity. The result further implied that a unit increase in Debt Ratio, Interest Coverage Ratio, and Total Asset variables will increase Returns on Equity of painting industries' performance in Nigeria. However, a unit change in DBR will lead to a decrease in Returns on Equity in Nigeria's painting industries. A unit rise in DTR, ICR, and TAS will account for ROE by 65.68%, 14.41percent, and 0.003 percent increase, and a change in DBR resulted in a 24.0 percent ROE decrease. ICR and DTR are significant to ROE at 5 percent. DBR and TAS are not significant to ROE of painting industries' in Nigeria. The study recommended that ICR be increased to spur a positive increase in the financial performance of painting industries in Nigeria.