FINANCIAL LEVERAGE AND INTERNAL GROWTH RATE OF LISTED INDUSTRIAL GOODS FIRMS IN NIGERIA
Keywords:
Debt to Assets Ratio, Debt to EBITDA, Debt to Equity Ratio, Financial Leverage, Interest Coverage Ratio, Internal Growth RateAbstract
The study examined the effect of financial leverage on the internal growth rate of listed industrial goods firms in Nigeria. The specific objective was to ascertain the effect of debt asset ratio, debt equity ratio, debt to earnings before interest, taxes, depreciation, and amortisation (EBITDA) ratio and interest coverage ratio on internal growth rate. Ex-post facto research design was adopted. The population comprised thirteen listed industrial goods firms in Nigeria, from which a purposive sample size of nine was selected. Secondary data were sourced from the annual reports of the firms (2013-2023). The hypotheses were tested using panel estimated generalised least square. The findings revealed that: Debt Asset Ratio has a positive and significant effect on internal growth rate of listed industrial goods firms in Nigeria (β = 0.8677, p = 0.0012); Debt Equity Ratio has a negative and significant effect on internal growth rate (β = -1.7390, p = 0.0000); Debt to EBITDA Ratio has a positive and significant effect on internal growth rate (β = 0.2397, p = 0.0000); Interest Coverage Ratio has a positive but insignificant effect on internal growth rate of listed industrial goods firms in Nigeria (β = 0.0004, p = 0.8113). The study concluded that financial leverage exerts both positive and negative influences on the internal growth rate of listed industrial goods firms in Nigeria, emphasizing the need for strategic debt management to balance growth potential with financial stability. It therefore recommends that management teams of Nigerian industrial goods firms are advised to strategically use debt financing to fund expansion and capital investment, ensuring that the firm is making optimal use of its assets by supporting growth initiatives, such as new product development or market expansion, without jeopardizing the firm’s long-term sustainability.
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