FINANCIAL LEVERAGE AND PROFITABILITY PERFORMANCE OF QUOTED BANKS IN NIGERIA

Abstract

This study examined the relationship between financial leverage and profitability performance of Quoted Banks in Nigeria for nine (9) years period covering from 2013-2022. The specific objective was to investigate the effect of the explanatory variables, proxied on Debt ratio (DR), Debt-to-Equity ratio (DER) and the Interest Cover Ratio (ICR) on the denominator variable, profitability performance, proxied on Return-to-Equity (ROE). The study adopted the ex-post-facto research design to elicit secondary data for eleven (11) Banks as provided in the annual financial reports made available in the website of Nigeria Stock Exchange as at December, 2022. Eleven (11) banks were randomly selected and three (3) null hypotheses were postulated to guide the study. The result reveals that, financial leverage has no significant effect on DR and the DER of Quoted banks profitability performance in Nigeria, as evidenced in the t-value at -0.280 for DR and -1.283 for DER respectively. This led to the rejection of the null hypotheses one and two. The study concluded that, Bank managers should always weigh the cost benefits of fixed charge funds hence Nigeria is an emerging economy with volatile risk factors, and the government should also encourage the Quoted Banks in Nigeria to use borrowed funds by providing adequate shields and other financial incentives so as to increase gross domestic growth on the overall in the economy.