INVESTIGATE THE COMBINED INFLUENCE OF CAPITAL STRUCTURE AND FIRM SIZE ON FINANCIAL PERFORMANCE USING A MULTIVARIATE MODEL

Abstract

This study examined the combined influence of capital structure and firm size on the financial performance of Nigerian firms, using a multivariate analytical approach to capture both direct and interaction effects. Recognizing that financial performance is influenced not only by financing decisions but also by the scale of operations, the study integrates firm size as a moderating variable to provide a more nuanced understanding of firm-specific determinants of profitability. The research utilizes secondary data from listed firms on the Nigerian Exchange Group over a ten-year period (2015–2024), applying panel regression techniques, including pooled OLS, fixed effects, random effects, and the Generalized Method of Moments (GMM), to control for unobserved heterogeneity, endogeneity, and dynamic effects. The results indicate that capital structure significantly affects financial performance: long-term debt is positively associated with profitability due to stable financing and alignment with investment projects, while short-term debt and high overall leverage negatively impact performance due to liquidity pressures and increased financial risk. Firm size exhibits a positive and significant influence on financial outcomes, with larger firms benefiting from economies of scale, better access to external finance, and improved operational efficiency. Moreover, firm size moderates the effect of capital structure, enabling larger firms to utilize debt more effectively than smaller firms. The findings emphasize the importance of strategic alignment between debt management and firm scale to achieve sustainable financial performance in Nigerian firms.