Financial Strategies Driving Market Performance During Recession in Nigerian Manufacturing Firms

Okechukwu Enyeribe Njoku and Younghwan Lee ()
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Okechukwu Enyeribe Njoku: Department of Business Administration, Kumoh National Institute of Technology, Gumi 39177, Republic of Korea
Younghwan Lee: Department of Business Administration, Kumoh National Institute of Technology, Gumi 39177, Republic of Korea

JRFM, 2025, vol. 18, issue 2, 1-24

Abstract: This study examines the interplay between leverage, dividend policy, and market performance in Nigeria’s manufacturing sector during the economic downturn of 2016–2020. Drawing on signaling and trade-off theories, we investigate how firms balanced leverage and dividend payouts to sustain performance amidst macroeconomic shocks, including currency depreciation, inflation, and weakened consumer demand. Using panel data from 26 Nigerian Stock Exchange-listed firms, the study applies pooled ordinary least squares (POLS) and fixed-effect models (FEM) to analyze the direct and interactive effects of leverage and dividend policy on market performance, controlling for profitability, firm size, and taxation. The findings reveal that leverage generally exerts a negative effect on firm value, particularly long-term debt, which increases financial distress risks. However, the interaction between leverage and dividend payouts positively moderates this relationship, suggesting that firms use dividends strategically to signal stability and mitigate leverage-related risks. Profitability emerges as a key determinant of firm value, while short-term debt provides operational flexibility, and taxation imposes significant financial strain. Larger firms demonstrate greater resilience, benefiting from scale economies and diversified funding sources. This research highlights the importance of an integrative financial strategy during periods of economic uncertainty, emphasizing the complementary roles of leverage and dividend policy in enhancing firm value. The findings offer critical insights for policymakers and corporate managers in emerging markets, advocating for tax reforms and prudent financial management to improve business resilience. By addressing gaps in the literature, this study contributes to the understanding of financial decision-making in developing economies.

Keywords: leverage; dividend policy; economic recession; firm value; emerging markets (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
Date: 2025
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