EFFECT OF FINANCIAL LEVERAGE ON FINANCIAL REPORTING QUALITY OF LISTED CONSUMER GOODS FIRMS IN NIGERIA

Abstract This study investigates the effect of financial leverage on the financial reporting quality of listed consumer goods firms in Nigeria. Financial leverage, commonly used to finance business operations and expansion, can also introduce financial reporting distortions due to increased managerial pressure to meet debt obligations. The study specifically focuses on five leading companies in the Nigerian consumer goods sector: Nestlé Nigeria Plc, Unilever Nigeria Plc, Nigerian Breweries Plc, Guinness Nigeria Plc, and Cadbury Nigeria Plc. Using secondary data sourced from audited annual reports covering a ten-year period (2013–2022), the study employs descriptive statistics, correlation analysis, and panel data regression techniques to explore the relationship between financial leverage and earnings quality, a proxy for financial reporting quality. The results reveal a significant and negative relationship between financial leverage and financial reporting quality, indicating that higher levels of debt are associated with increased earnings management and reduced transparency in financial statements. Additionally, firm-specific control variables such as firm size and profitability were found to have a positive and significant impact on reporting quality, while corporate governance indicators had an insignificant effect within the sample. These findings support agency theory, which suggests that debt increases the conflict between managers and creditors, thereby encouraging opportunistic financial reporting behaviors. The study concludes that excessive financial leverage compromises financial reporting integrity among consumer goods firms in Nigeria. It recommends that firms maintain a balanced capital structure, strengthen internal governance systems, and that regulators enhance oversight of highly leveraged firms to promote transparency and investor confidence. The study contributes to the literature on capital structure and reporting behavior in emerging markets and provides practical insights for policymakers, investors, and corporate managers.