Firms’ efficiency and financial leverage of the listed consumer goods companies in Nigeria, 2015-2024

Abstract

Purpose: The ongoing academic debate over whether efficient firms use more leverage motivated this study. In Nigeria, consumer goods firms use less long-term debt to finance their operations, and their efficiency has been low. Could this be due to a lack of long-term debt financing? Therefore, this study examined the effect of firm efficiency on the financing leverage of listed consumer goods companies in Nigeria from 2015 to 2024. Methodology: Panel data were extracted from the financial statements of all 17 listed consumer goods companies in Nigeria. To control for endogeneity, the generalized method of moments was employed. Additionally, Kao co-integration and the Granger causality test were also conducted. Results and Conclusion: Findings showed that firm efficiency exerted a negative and significant effect on the financial leverage of the selected consumer goods companies in Nigeria. The study concluded that there is a statistically significant effect of firm efficiency (OPE and MKE) on the financial leverage of the selected consumer goods companies in Nigeria. Recommendations: The study recommends that management should employ intensive growth strategies (product development, market penetration, and market development) to improve their efficiency levels, as this would increase their capacity to accommodate more debt for the growth of the firm in the long run. This study contributes to the literature from Nigeria, particularly in the area of firm efficiency and its role in enhancing the capacity of firms to use more long-term debt in their financing decisions.