EFFECT OF FINANCIAL LEVERAGE ON FIRM VALUE OF LISTED OIL AND GAS FIRMS IN NIGERIA

Abstract

The study examined the effect of financial leverage on the firm value of listed oil and gas companies in Nigeria. The specific objective was to determine the effects of the total debt-to-equity ratio, the total debt-to-assets ratio, and the long-term debt-to-assets ratio on the net asset per share of listed and gas firms in Nigeria. The study deployed an ex-post facto research design. The population comprises nine (9) publicly listed oil and gas companies on the Nigerian Exchange Group. The selection of firms for the sample size was based on purposive sampling. In this study, specifically, five (5) out of the available nine (9) firms were chosen. Secondary data were extracted from annual reports of oil and gas companies over ten years, spanning from 2014 to 2023. The collected secondary data were coded into the statistical software EVIEWS Version 11. To test the hypotheses, Ordinary Least Squares regression analysis was conducted at a 5% significance level. The findings showed that: total debt to equity ratio has a negative but non-significant effect on the net asset per share of listed oil and gas firms in Nigeria (β = -0.700522; p-value = 0.7772); total debt to asset ratio has a positive and significant effect on the net asset per share of listed oil and gas firms in Nigeria (β = -82.91655; p-value = 0.0394); long term debt to asset ratio has a negative and significant effect on the net asset per share of listed oil and gas firms in Nigeria (β =  111.0643; p-value = 0.0050). In conclusion, firms with substantial long-term debt may see a reduction in their net asset per share, reflecting the adverse effects of prolonged financial obligations. In light of the adverse effect of the long-term debt-to-assets ratio on net asset per share, the board of directors should implement policies to limit excessive long-term borrowing. They should prioritize financial strategies that maintain a balanced approach to long-term debt, ensuring that it does not compromise the firm’s financial flexibility or lead to value erosion.