MODERATING EFFECT OF ASSET TANGIBILITY ON THE RELATIONSHIP BETWEEN CAPITAL STRUCTURE AND FINANCIAL PERFORMANCE OF MULTINATIONAL COMPANIES IN NIGERIA

Abstract

This study examines the moderating effect of asset tangibility on the relationship between capital structure and financial performance of multinational companies operating in Nigeria. Anchored on the Trade-Off Theory, the study adopts a quantitative, ex-post facto research design using panel data from 10 multinational firms over a ten-year period (2014–2023). The findings reveal that while capital structure variables (DER and LTDR) have a negative direct effect on financial performance, asset tangibility exerts a positive influence and significantly moderates the leverage–performance relationship. Specifically, tangible assets enhance firms' ability to manage debt efficiently, thereby offsetting the adverse effects of high leverage. The inclusion of asset tangibility improves the explanatory power of the model (R2 = 0.672), supporting the view that firm-specific characteristics condition the impact of financing decisions on profitability. The findings revealed that capital structure components Debt-to-Equity Ratio (DER) and Long-Term Debt Ratio (LTDR) have statistically significant effects on financial performance, negative coefficients in the moderation model. This indicates that excessive leverage may be detrimental to profitability if not properly supported by tangible assets. In contrast, asset tangibility was found to exert a positive and significant direct effect on firm performance and to moderate the adverse impact of high leverage. Based on the findings, the following recommended among others that Multinational companies should align their capital structure strategies with their asset profiles. Where tangible assets are substantial, firms can safely explore moderate leverage to finance growth. However, in cases of low asset tangibility, excessive debt should be avoided to prevent performance decline and Credit providers should assess a firm's asset tangibility before granting long-term or large-scale credit facilities.

Keywords: Capital Structure, Financial Performance, Asset Tangibility.