Financial leverage and performance of listed information and communication technology companies in Nigeria

Abstract

Purpose: This paper examines how the leverage component of the capital structure determines the performance of Information & Communication Technology (ICT) Companies in Nigeria.

Methodology: Data from six listed ICT firms in Nigeria were used, covering the period 2011- 2023. Descriptive statistics and robust Pooled Ordinary Least Squares regression were used for the analysis.

Findings: Results indicate that the short-term debt ratio does not determine performance, and the total-debt-to-equity ratio has a detrimental effect on financial performance, as measured by return on equity.

Implications: The study has provided value by adding to our understanding of how the performance of ICT firms is influenced by debt. The Pecking Order Theory's prediction was confirmed by the negative effect of debt on performance, with several implications. The Central Bank of Nigeria, through its monetary policy, is encouraged to cut down the cost of borrowing to enhance shareholders’ wealth through increased earnings and investment.

Originality: This research is among the very few that enrich our understanding of how leverage impacts performance in a vibrant sector, such as ICT in Nigeria.

Limitations and directions for future research: Despite the valuable contributions, the focus on firms in the ICT sector, which limits generalizability to other contexts, and the selection of leverage and performance proxies constitute vital limitations. Future research should examine other sectors, employing additional leverage measures (debt-to-equity ratio and interest coverage ratio) and performance measures (Tobin’s Q and earnings per share).