IMPACT OF FINANCIAL LEVERAGE ON FIRM PERFORMANCE OF QUOTED MANUFACTURING COMPANIES IN NIGERIA

This study examines the impact of financial leverage on firm performance among quoted manufacturing firms in Nigeria, focusing on the relationships between debt-to-equity ratio (DER), short-term debt ratio (STDR), long-term debt ratio (LTDR), and return on assets (ROA). Motivated by the capital-intensive nature of the manufacturing sector and the challenges of accessing affordable financing in Nigeria's volatile economic environment—characterized by high interest rates, inflation, and infrastructural deficits—the research addresses gaps in existing literature, which often yields mixed findings on leverage's effects in emerging markets. The primary objective is to determine how these leverage components influence ROA, with specific aims to assess DER's curvilinear impact, STDR's role in liquidity support, and LTDR's potential to erode profitability. Employing an ex-post facto research design, the study utilizes secondary panel data from audited financial statements of 44 purposively sampled firms listed on the Nigerian Exchange Group (NGX) over the period 2019–2024. Data were analyzed using descriptive statistics and panel ordinary least squares (OLS) regression with firm fixed effects, incorporating diagnostic tests for heteroskedasticity (Breusch-Pagan), multicollinearity (variance inflation factor), and normality (Shapiro-Wilk) to ensure model validity. The regression model explained 52.5% of ROA variance, confirming robustness. Key findings reveal a significant curvilinear relationship between DER and ROA, where moderate leverage enhances asset efficiency through tax shields and investment amplification, but excessive levels diminish returns due to interest burdens. STDR shows a positive but insignificant effect, indicating its utility for operational liquidity without strong influence on ROA. LTDR exhibits a significant negative impact, highlighting the risks of long-term obligations in straining cash flows amid economic instability. These results align with the Trade-Off Theory (balancing debt benefits against distress costs) and Pecking Order Theory (preferring debt to minimize signaling risks), contextualized in Nigeria's unique market conditions. In conclusion, the study underscores the need for balanced leverage strategies to optimize performance, offering practical insights for managers to monitor DER thresholds and policymakers to improve financing access. Keywords: Financial leverage, Debt-to-Equity Ratio (DER), Short-Term Debt Ratio (STDR), Long-Term Debt Ratio (LTDR), Return on Assets (ROA), Firm performance, Manufacturing firms, Nigerian Exchange Group (NGX), Trade-Off Theory, Pecking Order Theory, Panel OLS regression, Fixed effects, Emerging markets, Nigeria