Original Research
Financial leverage decisions in an era of corporate earnings down-turn and financial market instability: The Nigerian experience
Journal of Economic and Financial Sciences | Vol 4, No 2 | a324 |
DOI: https://doi.org/10.4102/jef.v4i2.324
| © 2018 Abel E. Ezeoha
| This work is licensed under CC Attribution 4.0
Submitted: 29 June 2018 | Published: 31 October 2011
Submitted: 29 June 2018 | Published: 31 October 2011
About the author(s)
Abel E. Ezeoha, Department of Economics and Economic History, Rhodes University, South Georgia and the South Sandwich IslandsFull Text:
PDF (318KB)Abstract
This paper examines the impact of profitability on the financial leverage of firms operating in an unstable macroeconomic environment such as Nigeria. Using fixed and dynamic panel models, it finds consistent evidence that the profitability of a firm significantly and negatively affects its short-term debt, but not its long-term debt capital. It attributes this to the unstable nature of the Nigerian business environment and the relative inefficiency of its financial markets. It signals that Nigerian firms could be over-relying on short-term debt and external equity to fund long-term investments – a trend that is capable of increasing cost of capital to a level above any plausible limit.
Keywords
firms; financial leverage; profitability; instability; theory; Nigeria
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