IMPACT OF FINANCIAL LEVERAGE ON FIRM PERFORMANCE

A CASE STUDY OF SELECTED MANUFACTURING FIRMS LISTED IN THE NIGERIAN STOCK EXCHANGE
IMPACT OF FINANCIAL LEVERAGE ON FIRM PERFORMANCE

Project Details

IMPACT OF FINANCIAL LEVERAGE ON FIRM PERFORMANCE


57 Pages, Chapter 1-5
Ms Word

08062235854

Contact Chris Research

Description

The study examines the impact of financial leverage on firm performance. In doing this, fifteen Nigerian listed manufacturing companies were focused on and annual account and reports for the period of two years (2011-2012) were consulted as a source of data. Data related to computation of various ratios required were extracted. However, OLS technique was adopted using multiple regression analysis to deduce the relationship that exists between the variables.

The conclusion is that financial leverage as a positive relation to ROE and negative to ROA. This implies that a company trading with more debt as a % level of confidence by it equity holder as regard to their return but a negative level of confidence on return on asset. Other parameters include; Asset growth as a negative relation to ROE and ROA, Firm size as a positive relation to ROE and ROA, Inventory turnover as a negative relation to ROE and positive to ROA and Sales turnover as a positive relation to ROE and negative to ROA.

Generally, I conclude that there is auto-correlation between the estimated parameters, therefore, H1 is accepted i.e. debt finance employed as a significant relationship on firm performance.

TABLE OF CONTENTS

CHAPTER ONE: Introduction

1.1       Background to the study

1.2       Statement of the problem

1.3       Objectives of the study

1.4       Research questions

1.5       Research methodology

1.6       Research hypothesis

1.7       Significance of study

1.8       Scope of the study

1.9       Definition of terms

CHAPTER TWO: Conceptual, Theoretical and Empirical Review

2.1       Leverage definition and concepts

2.1.1    Types of leverage

2.1.1a  Financial leverage

2.1.1b  Measures of financial leverage

2.1.1c  Degree of financial leverage

2.1.2    Operating leverage and its contribution to risk

2.1.2a  Degree of operating leverage

2.1.3    Total leverage and the trade-off hypothesis

2.1.4    Combining Operating and Financial leverage

2.1.5    Methods for finding Total leverage

2.1.6    Firm performance and its determinant

2.1.7    Measurement of firm performance

2.2       Theoretical framework

2.2.1    Capital Structure Theory review

2.2.1a  The Modigliani-Miller Theorem

2.2.1b  The Trade-off Theory

2.2.1c  Approaches regarding the methods of Determining Firm

2.3       Empirical Literature review

2.4       Leverage and Firm Performance

CHAPTER THREE: Research methodology

3.1       Introduction

3.2       Re-statement of Research Hypothesis

3.3       Study area

3.4       Research Design

3.5       Data

3.6       Sample and Sample Size

3.7       Model Specification

3.7.1    Model Building

3.8       Method of Data analysis

3.9       Criteria for Decision Making

CHAPTER FOUR: Data presentation, analysis and interpretation

4.1.      Presentation of Model 1

4.1.1    Evaluation Based on Econometric Criteria

4.1.2    Standard Error Test

4.1.3    Student t-test

4.1.4    Coefficient of multiple determination

4.1.5    Durbin Watson

4.2       Model 2

4.2.1    Evaluation based on Econometric criteria

4.2.2    Statistical test

4.2.3    Students T-test

4.2.4    Coefficient of multiple regression

4.2.5    Durbin Watson

CHAPTER FIVE: Summary of findings, conclusion and recommendations

5.1 Summary of findings

5.2 Conclusion

5.3 Recommendation

References

Appendix: Data of Manufacturing Firms Used In this Study

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