Financial Leverage and Corporate Value Creation of Manufacturing Firms in Nigeria

Abstract

This manuscript examines financial leverage as a strategic financing mechanism for corporate value creation among manufacturing firms in Nigeria. Manufacturing firms operate in a capital intensive environment where debt financing can support asset expansion, technology renewal, working capital stability and market growth. However, excessive leverage may expose firms to interest burden, liquidity strain, refinancing pressure and agency conflicts that weaken value creation. The study is positioned within trade off theory, pecking order theory, agency theory and signaling theory, and it proposes an ex post facto panel research design using firm level data from annual reports of listed manufacturing firms in Nigeria. Financial leverage is conceptualized through debt ratio, debt to equity ratio and interest coverage ratio, while corporate value creation is measured with market value added and supported by Tobin's Q as an alternative market-based measure. The paper integrates recent Nigerian evidence on tax planning, cost of debt, liquidity management, integrated reporting, financial technology and business patronage to strengthen the conceptual and empirical foundation. The manuscript argues that leverage contributes to value creation only when debt is used productively and supported by strong governance, efficient asset utilization, adequate liquidity and transparent reporting. It recommends that manufacturing firms maintain an optimal debt level, align borrowing with productive investment, monitor interest coverage, and improve disclosure on capital structure decisions.