The Moderating Effect of Financial Leverage on Firm Value: Evidence from Listed NGX Firms

Abstract

This study examines the effects of profitability and financial leverage on firm value among non financial firms listed on the Nigerian Exchange Group (NGX) from 2014 to 2025, with particular emphasis on the moderating role of leverage during Nigeria’s post-2020 monetary tightening period. Using a balanced panel comprising 102 firms and 1,224 firm-year observations, the study employs panel fixed effects with Driscoll-Kraay standard errors and System GMM for robustness. The findings indicate that profitability has a significant positive effect on firm value, whereas financial leverage has a significant negative effect. More importantly, leverage significantly weakens the positive relationship between profitability and firm value, and this effect is amplified in the post-2020 period, which is characterised by high inflation, elevated interest rates, and foreign-exchange volatility. The results support the relevant theories and suggest that, in emerging markets experiencing macroeconomic stress, leverage acts as a risk amplifier rather than a value enhancer. The study recommends that managers adopt conservative leverage and profitability focused strategies, alongside policy measures to reduce corporate financing costs.