Financial Leverage and Market Value of Listed Deposit Money Banks in Nigeria

Abstract

Purpose: The study examined the effect of financial leverage on market value of listed Deposit Money Banks (DMBs) in Nigeria. Specifically, the study examined the effect of short term debt ratio, long term debt ratio, and debt to assets ratio on market value of listed DMBs in Nigeria. Methodology: The study adopted the ex-post facto research design.  A sample of 12 DMBs was drawn from a population of 14 DMBs listed on the Nigerian Exchange Group using the filtering method. Data were sourced from annual reports and accounts of the sampled DMBs in Nigeria. The study period covered ten (10) years from 2011-2020. The random effect regression model was used for data analysis, based on the recommendations of the Hausman Specification Tests results. Findings: The results of the study suggested that while short term debt ratio has an insignificant positive effect on market value of DMBs in Nigeria, long term debt ratio has a perverse and insignificant effect on market value of DMBs in Nigeria. The result of the study further ascertained that debt to assets ratio has a significant positive effect on market value of DMBs in Nigeria. Recommendations: The study, therefore, recommended that DMBs in Nigeria should employ a higher proportion of debt financing especially when the funds will be used to increase assets utilization. The study also recommended that listed DMBs in Nigeria should prioritize short term component of financial leverage in their financing mix.