Financial Leverage and Shareholder’s Wealth of Listed Manufacturing Firms in Nigeria

Abstract

The study examined the effect of financial leverage on the shareholder’s Wealth of quoted manufacturing firms in Nigeria. Specifically, the study determined the effect of debt-to-equity, debt-to-total assets, long-term debt-to-assets, on earnings per share of the firms. The study adopted an ex-post facto research design. The population comprised forty listed manufacturing firms in Nigeria. Purposive sampling was used to select a sample size of thirty (30) manufacturing firms. Secondary data were obtained from the published financial statements of the sampled firms covering a period of thirteen years (2012–2024). The data were analyzed using descriptive statistics, spearman ranking correlation and Panel Estimated Generalized Least Squares (EGLS) regression (Fixed Effect and Random Model) at a 5% significance level, Husman test was used to select fixed effect model result. The findings revealed that: debt-to-equity ratio had a positive and significant effect on earnings per share (β = 0.3437; p = 0.0000); total debt-to-total assets ratio had a positive but non-significant effect on earnings per share (β = 0.3268; p = 0.9033); long-term debt-to-total assets had a negative but non-significant effect on earnings per share (β = -2.3526; p = 0.4084). The study concluded that financial leverage affected shareholder’s wealth of listed manufacturing firms in Nigeria prudent management of debt structure was seen as essential for improving profitability and sustaining the shareholder’s wealth of manufacturing firms in Nigeria. It was recommended that management of quoted manufacturing firms in Nigeria should maintain a balanced mix of debt and equity financing, ensured that borrowed funds were used to finance projects with clear profit-generating potential, since the study showed that moderate debt use enhances earnings per share.