International Journal of Research and Innovation in Social Science (IJRISS) |Volume VI, Issue XII, December 2022|ISSN 2454-6186 www.rsisinternational.org Page 188 Firm Size, Financial Leverage and Firm Performance: Evidence from Firms Listed in the Non-Financial Sectors of the Nigeria Stock Exchange James Sunday Kehinde, Sehilat Abike Bolarinwa, Olukayode Ezekiel Ibironke* Department of Accounting, Lagos State University, Ojo, Lagos State, Nigeria *Corresponding author Abstract: This study examined the moderating effects of firm size on the financial leverage – performance relationship of non- financial firms in Nigeria. The study used the ex-post facto research design and secondary data was adopted from annual reports of 50 non-financial firms listed on the Nigeria Stock Exchange as at 31 December 2019. The data used was for the period of 2010 – 2019 and multiple regression tool was used to analysed the data collected. The findings of this study shows that debt ratio (β= -0.459; p < 0.05) has a significant negative relationship with financial performance of listed non-financial firms as at 31 December, 2019. Also, introducing firm size as a moderating variable led to a (β=0.043; p < 0.05) significant positive effects on the leverage – performance relationship. The study concluded that financial leverage affects the financial performance of non-financial firms in Nigeria and that firm size has effects on the leverage-performance relationship. The study recommended that management must determine their organization optimal capital mix and also put their firm size into consideration before deciding the amount of debt finance to be included in the capital. Keywords: firm size, financial leverage, firm performance, non- financial firms, debt ratio, return on assets I. INTRODUCTION ne of the core functions of management is to take financing decision for the organization. Financing decision is an essential and crucial decision making due to its ability to shape the future direction of an organization. It is a major decision that determines the survival and well-being of an organization. Also it is considered vital aspect of the management function because it is capable of influencing shareholders’ wealth and risk taken. Management must decide on the cheapest way of financing their investment plans in order to maximize shareholders’ wealth and for the survival of the firm [12]. Organization may be financed by debt, equity or both but the reality is that most organizations are financed by a mix of the two. The practice of having a mix of debt and equity is called financial leverage. An organization entirely financed by equity is said to be unlevered while the one financed by both equity and debt is termed levered. The expectation of all stakeholders is that management will take a financing decision that gives the organization an optimal capital structure. This is essential because the capital mix employed by an organization will affect its performance. Financial leverage can help to increase the shareholders’ return on their investment and also help to enjoy the tax advantage benefits associated with borrowing. It is believed that performance would be boosted if the managers make the right decision in terms of capital financing. More returns would be expected if the returns earned on utilization of borrowed capital is higher than the cost of assessing such debt capital. Financial leverage is the usage of borrowed sum to fund investment in expansion of a firm’s asset base and to generate returns. It is an investment strategy whereby loan sum is used to the possibility of returns on investment. A. Statement of Problem [7] stated that arriving at an optimal mix of equity and debt is a major financing decision issue confronting organizations. Having an adequate source of financing capable of maximizing shareholders’ wealth is a common probl em that management keep facing [38]. [2] affirms that managers have difficulty in arriving at an optimal proportion of debt and equity capital. According to [15] the major reason why an organization considers using financial leverage is to ensure good dividend for shareholders on their investment. Financial leverage is the means through which an organization improves its performance [30]. [15] asserted that the ability of financial leverage to improve shareholders’ dividend is based on the believed that fixed-charge capital can be obtained at a cost lower than the firm’s returns on investment. [41] is of the position that debt financing has two main benefits to an organization. First is that the interest paid on debt capital are exempted from tax (tax shield) and this can enhances the value of the organization. The other benefit is that it restrict managers from wasteful spending as excess free cash flows that would have been available to them will be committed to payment of fixed interest. [41] however stated that these benefits does not mean organization should be encouraged to increase the debt proportion of their capital structure because certain costs are associated with debt financing. Hence he suggested that there is need for an optimal debt-equity proportion between complete equity financing and complete debt financing. Some studies in Nigeria ([43], [4], [40], [41], [14], [7], [24]) has studied possible links between leverage and performance with some establishing significant positive relationship and some concluding on significant negative relationship while O