Effect of Financial Leverage on Corporate Performance of Pharmaceutical Industries in Nigeria

Abstract

The study sought to examine the effect of financial leverage on firm performance in pharmaceutical industries and also determine the relationship and effects among the identified variable using firm performance as dependent variable while forms debt ratio, total debt to total asset, debt to asset ratio, long term debt ratio, liquidity as independent variables. Five research questions and five hypotheses were developed for the study. Ex-post factor research design was considered appropriate for the study together with the study of six years’ annual financial report of the listed pharmaceutical companies (2018-2023). Pearson moment correlation was adopted for data analysis, and the analysis revealed that Debt ratio has significant effect on performance of pharmaceutical firms in Nigeria, the result of the analysis also include that Total debt to total asset has significant effect on performance of pharmaceutical firms in Nigeria, among other. Based on the findings, it was recommended that Debt ratio should be increased steadily to sustain firm's value and investment in the organization because an increase in debt ratio is directly proportional to the robust performance of pharmaceutical firms in Nigeria. Among the findings are; Firms should be familiar with the timing of total debt to total asset to run with the number of times that is better and favourable to total debt to total asset to investors, Financial leverage pattern that is not properly checked will invariably hamper the performance of a firm, Debt to asset ratio increases the probability of a dividend cut rather than adjusting payouts the concept of leverage is used by both investors and companies. Among others.