Effect of Firm Characteristics and Financial Performance of Oil and Gas Companies in Nigeria
Abstract
This study examines the impact of firm characteristics on the financial performance of oil and gas companies listed on the Nigerian Stock Exchange. Specifically, the study investigates the influence of financial leverage (FLV), firm size (FSZ), firm age (FAG), and return on equity (ROE) on financial performance, measured by return on assets (ROA). Utilizing panel data extracted from the annual financial reports of selected oil and gas firms over a period of 11years (2010-2023), the analysis employed Pooled Ordinary Least Squares (OLS), Random Effects Model (REM), and Fixed Effects Model (FEM). Diagnostic tests, including the Breusch-Pagan Lagrange Multiplier and Hausman tests, confirmed the appropriateness of the robust Fixed Effects Model for the analysis. The findings reveal that financial leverage and return on equity have a positive and statistically significant effect on return on assets, suggesting that effective use of debt and strong equity returns enhance profitability. Conversely, firm size shows a negative and significant relationship with financial performance, indicating potential inefficiencies associated with firm growth. Firm age, however, has an insignificant effect on ROA, implying that maturity alone does not drive financial outcomes in the sector. The study concludes that firm-specific factors play a critical role in shaping financial performance. It recommends that oil and gas firms in Nigeria adopt strategic capital structure decisions, improve operational efficiency, and enhance shareholder value to achieve sustainable growth. The findings offer important insights for corporate managers, investors, and policymakers seeking to improve firm performance in the capital-intensive oil and gas industry.
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