FIRM PROFITABILITY ON FINANCIAL LEVERAGE OF LISTED INDUSTRIAL GOODS FIRMS IN NIGERIA

Abstract

This study was carried out to evaluate the effect of firm profitability on financial leverage of industrial good firms in Nigeria. The study used profitability of industrial good firms as dependent variable, while financial leverage of same consumer good firms as dependent variable. The traditional panel least square regression (PLSR) was used in the model. The study applied panel data models on annual data of consumer good firms within the scope. In order to circumvent endogeneity problems, panel estimation techniques of fixed and random effects was adopted in this study, Panel data estimation allows for the control of individual-specific effects usually unobservable which may be correlated with other explanatory variables included in the specification of the relationship between dependent and explanatory variables using Haussmann test. Result from the Haussmann test statistics reveals that market value had a negative and non-significant effect on financial leverage of industrial good firms in Nigeria. The researcher therefore recommended that Profitability of the firm should be prioritised since it had a significant positive effect on financial leverage of industrial good firms in Nigeria. When a firm is profitable, it lead to efficiency of their capital structure mix.