International Journal of Research and Innovation in Social Science (IJRISS) |Volume VI, Issue XII, December 2022|ISSN 2454-6186
James Sunday Kehinde, Sehilat Abike Bolarinwa, Olukayode Ezekiel Ibironke*
Department of Accounting, Lagos State University, Ojo, Lagos State, Nigeria
*Corresponding author
Abstract: This study examined the moderating effects of firm size on the financial leverage – performance relationship of non-financial firms in Nigeria. The study used the ex-post facto research design and secondary data was adopted from annual reports of 50 non-financial firms listed on the Nigeria Stock Exchange as at 31 December 2019. The data used was for the period of 2010 – 2019 and multiple regression tool was used to analysed the data collected. The findings of this study shows that debt ratio (β= -0.459; p < 0.05) has a significant negative relationship with financial performance of listed non-financial firms as at 31 December, 2019. Also, introducing firm size as a moderating variable led to a (β=0.043; p < 0.05) significant positive effects on the leverage – performance relationship. The study concluded that financial leverage affects the financial performance of non-financial firms in Nigeria and that firm size has effects on the leverage-performance relationship. The study recommended that management must determine their organization optimal capital mix and also put their firm size into consideration before deciding the amount of debt finance to be included in the capital.
Keywords: firm size, financial leverage, firm performance, non-financial firms, debt ratio, return on assets
I. INTRODUCTION
One of the core functions of management is to take financing decision for the organization. Financing decision is an essential and crucial decision making due to its ability to shape the future direction of an organization. It is a major decision that determines the survival and well-being of an organization. Also it is considered vital aspect of the management function because it is capable of influencing shareholders’ wealth and risk taken. Management must decide on the cheapest way of financing their investment plans in order to maximize shareholders’ wealth and for the survival of the firm [12]. Organization may be financed by debt, equity or both but the reality is that most organizations are financed by a mix of the two. The practice of having a mix of debt and equity is called financial leverage. An organization entirely financed by equity is said to be unlevered while the one financed by both equity and debt is termed levered. The expectation of all stakeholders is that management will take a financing decision that gives the organization an optimal capital structure. This is essential because the capital mix employed by an organization will affect its performance. Financial leverage can help to increase the shareholders’