Analysis of Effect of Financing Leverage on Bank Performance: Evidence from Nigeria

Abstract

This paper analyzes the effect of leverage financing on corporate performance using debt-equity, coverage ratios and earnings per share as proxies. The study is motivated by need to assess the extent to which leverage affects optimizes financing risk as well as maximize returns to shareholders in the Nigerian banking industry. The study made use of F-ratios, Durbin-Watson; Akaikeand Schwarz Information Criteria as well as to log likelihood parameters in arriving at conclusions. Though the results across banks studied shows mixed outcome, leverage financing was established as critical strategy for maximization of shareholders returns. The conclusion therefore is that in order to ensure that leverage financing leads to desired outcome businessorganisations must established their optimum level as well as strike a strategic balance with associated financing risk and returns to owners of the firm.

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