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Debt as a Double-Edged Sword: Amplifier of Gains and Losses Among Listed Oil and Gas Firms in Nigeria

Ama Kalu Ikwuo, Enyinnaya Oko Egwu

Abstract

This study examined how firm debt, proxied by debt-to-equity ratio and debt-to-asset ratio, influences the financial performance, measured by return on capital employed , of listed oil and gas firms in Nigeria, with a focus on its dual role in amplifying gains and losses. The study adopted an ex-post facto research design and analyzed data from seven oil and gas firms listed on the Nigerian Exchange Group as of 2024. Secondary data were collected from the annual reports of the sampled firms for the period 2015 to 2024. Hypotheses were tested using panel Generalized Least Squares regression to address heteroskedasticity and cross- sectional dependence. The findings reveal that debt-to-equity ratio has a positive and significant effect on ROCE (β = 0.058, p = 0.000), indicating that higher leverage relative to equity enhances financial performance. Equally, it was found that debt-to-asset ratio has a negative and significant effect on ROCE (β = -0.124, p = 0.0485), suggesting that excessive reliance on debt relative to total assets reduces financial performance. Thus, boards and financial controllers should closely monitor the debt-to-asset ratio , aiming to keep it below 1.0, as higher values were empirically shown to reduce ROCE due to increased financial distress costs.

Keywords

Firm DebtDebt-To-Equity RatioDebt-To-Asset RatioReturn on Capital Employed

References

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