THE INFLUENCE OF FINANCIAL LEVERAGE AND MARKET CAPITALIZATION ON FIRMS’ PROFITABILITY
Abstract
This study examined the influence of financial leverage and market capitalization on the profitability of listed consumer goods and services firms in Nigeria. Using panel data from 33 firms spanning 2014 to 2023, profitability is measured by return on assets (ROA), while financial leverage is represented by the debt-to-equity ratio (DER), debt-assets ratio (DAR), and long-term debt-to-equity ratio (LTDR). Market capitalization (MC) is also analyzed as a key determinant of profitability. The findings reveal that DER has a positive but statistically insignificant effect on ROA, while DAR and LTDR negatively and significantly impact profitability. Conversely, market capitalization exhibits a strong positive and significant relationship with ROA (17.09% overall statistical significance), suggesting that larger firms enjoy profitability advantages. These results highlight the importance of optimizing leverage, particularly long-term debt, and leveraging the scale advantages of larger firms to sustain profitability. The study provides actionable insights for corporate managers and policymakers to develop strategies that enhance firm performance in the dynamic context of emerging markets.
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Published in UNIPORT JOURNAL OF BUSINESS, ACCOUNTING & FINANCE MANAGEMENT
ISSN: 1596-9911
This article appears in our peer-reviewed academic journal
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