Degree of Leverage and Systematic Risk of Quoted Industrial and Consumer Goods Firms in Nigeria
The relationship between degrees of leverage and systematic risk has been a subject of ongoing debate in finance. While it is generally accepted that leverage can amplify both return and risk, the exact nature and magnitude of this relationship remain unclear. In this light, the current study investigates the impact of degrees of leverage on the systematic risk of quoted industrial and consumer goods firms in Nigeria. The study covered a period of 11 years from 2012 to 2022. Data on operating leverage, financial leverage, and stock prices were obtained from the audited annual financial reports of 15 industrial and consumer goods firms and the official price list of the Nigeria Exchange Group. The data analysis methods consist of descriptive statistics, correlation analysis, and panel least squares regression analysis. The study's findings revealed that the degree of combined leverage (DCL) has a significant positive interactive effect on systematic risk. Further, both the degree of financial leverage (DFL) and operating leverage (DOL) individually have a negative relationship with systematic risk but only the financial leverage is statistically significant. The study therefore concludes that the degrees of leverage significantly influence the shareholders’ systematic risk in quoted industrial and consumer goods firms in Nigeria. The study recommends that firms should carefully consider their leverage decision in the context of their overall risk management strategy. Firms should also be aware of the potential impact of market conditions and imperfection on the risk associated with leverage to minimize the systematic risk. Keywords: Financial leverage, operating…