An Empirical Examination of the Relationship between Capital Structure and the Financial Performance of Firms in Nigeria (original) (raw)
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Capital Structure and Financial Performance of Selected Quoted Firms in Nigeria
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IMPACT OF CAPITAL STRUCTURE ON THE FINANCIAL PERFORMANCE OF NIGERIAN FIRMS
This paper examines the impact of capital structure on financial performance of Nigerian firms using a sample of thirty non-financial firms listed on the Nigerian Stock Exchange during the seven year period, 2004 -2010. Panel data for the selected firms were generated and analyzed using ordinary least squares (OLS) as a method of estimation. The result shows that a firm's capita structure surrogated by Debt Ratio, Dr has a significantly negative impact on the firm's financial measures (Return on Asset, ROA, and Return on Equity, ROE). The study of these findings, indicate consistency with prior empirical studies and provide evidence in support of Agency cost theory.
This study examined capital structure and financial performance of firms in the oil and gas sector in Nigeria. Expo-facto research design was adopted and the population covered all the 12 listed Oi and Gas firms in Nigeria; out of which, 10 firms were randomly sampled. The study covered 10 years, spanning from 2010-2019 and the data used were gathered from the financial reports of the sampled firms. A regression analysis was carried out on the panel data with regards to pooled Ordinary Least Square (OLS) estimation, fixed effect estimation and random effect estimation. It was discovered that total debt ratio, long-term debt ratio and short-term debt ratio have a negative effect on return on asset with their respective coefficient values of-0.504,-0.291, and-0.422. However, the negative effect was only significant for short-term debt ratio with the probability value of 0.000, as against the insignificant negative effect of total debt ratio and long-term debt ratio with their respective probability values of 0.423 and 0.098. In the same vein, debt equity ratio has a positive and significant effect on return on asset to the tune of 0.352(0.002<0.05). It was concluded that the effect of capital structure on financial performance of firms, in terms of return on equity was statistically significant. Thus, it was therefore recommended that financial managers should establish a clear policy for capital structure that will engender the right mix of equity and debt that will improve firms' profitability.
Capital structure and financial performance of listed manufacturing firms in Nigeria
Journal of Research in International Business and Management, 2018
This study examined the impact of capital structure on financial performance of quoted manufacturing firms in Nigeria over the period 2005-2014. Panel methodology was applied to analyse the impact of capital structure on financial performance of quoted manufacturing firms in Nigeria. The findings of the panel ordinary least square show that a positive statistically significant relationship exist between long term debt ratio(LTD) (0.0001), total debt ratio (TD) (0.0065) and return on equity (ROE) while a positive statistically insignificant relationship between ROE (return on equity) and STD (Short term debt ratio). There was also a negative insignificant relationship between all the proxies of capital structure (LTD, STD and TD) and ROA which makes ROE a better measure of performance. The study concluded that capital structure has a positive impact on financial performance and companies should employ more of long term debts. Therefore it recommends that every firm should make good capital structures decision to earn profit and carry on their business successfully.
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The impact of capital structure on industrial performance in Nigeria is the focus of this study. A study of five (5) quoted firms between 1999 and 2007 was considered. The study employs the use of panel data regression model. The variables used are debt financing, equity financing, debt -equity ratio as well as Profitability index which measure firms' performance.
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This paper examines the optimum level of capital structure through which a firm can increase its financial performance using annual data of ten firms spanning a five-year period. The results from Im, Pesaran & Shine unit root test show that all the variables were non-stationary at level. The study hypothesized negative relationship between capital structure and operational firm performance. However, the results from Panel Least Square (PLS) confirm that asset turnover, size, firm’s age and firm’s asset tangibility are positively related to firm’s performance. Findings provide evidence of a negative and significant relationship between asset tangibility and ROA as a measure of performance in the model. The implication of this is that the sampled firms were not able to utilize the fixed asset composition of their total assets judiciously to impact positively on their firms’ performance. Hence, this study recommends that asset tangibility should be a driven factor to capital structure ...
EFFECT OF CAPITAL STRUCTURE ON FINANCIAL PERFORMANCE OF QUOTED MANUFACTURING COMPANIES IN NIGERIA
Eajournals, 2021
Capital structure is a mixture of the financing options a company uses to finance its investments. However, deciding on an optimal capital mix has been a huge task for most manufacturing companies. This paper therefore examined the effect of capital structure on financial performance of quoted manufacturing companies in Nigeria. The study covered ten companies for a period of seven years from 2013 to 2019. Panel data analysis was used to test the hypothesis. The independent variables used are total debt to total asset ratio (TDTAR), long-term debt to total assets (LDTAR), short-term debt to total assets (SDTAR) and total debt to total equity (TDTER) while the dependent variables are return on asset (ROA) and return on equity (ROE). The results of the study showed that SDTAR and LDTAR have positive but insignificant effects on ROA, and TDTAR has a negative significant effect on ROA and ROE respectively. Also, TDTAR and TDTER have negative insignificant effect on ROE. The study concluded that SDTAR, LDTAR, TDTER have no significant effect on ROA and ROE but TDTAR have effect on ROA. This study therefore recommended that firms should be cautious in accumulating debt that could eventually have adverse effects on their value and financial performance.
Capital Structure and Financial Performance in Nigeria
International Journal of Business and Social Research, 2015
Capital structure has been found to have impact on firm performance. Bank consolidation in Nigeria has increased bank equity capital against debt. This study aims to determine the impact of postconsolidation capital structure on the financial performance of Nigeria quoted banks. The study used profit before tax as a dependent variable and two capital structure variables (equity and debt) as independent variables. The sample for the study consists of ten (10) Nigerian banks quoted on the Nigerian Stock exchange (NSE) and period of eight (8) years from 2005 to 2012. The required data and information for the study were gathered from published annual reports. Ordinary least square regression analysis of secondary data shows that capital structure has a significant positive relationship with the financial performance of Nigeria quoted banks. This suggests that the management of quoted banks in Nigeria consistently use debt and equity capital in financing to improve earnings.
Journal of Finance and Investment Analysis, 2014
This research examines the effect of capital structure on firm’s performance with a case study of manufacturing companies in Nigeria from 2003 to 2012 with the purpose of providing a critical appraisal of the need and importance of capital structure. Descriptive and regression research technique was employed to consider the impact of some key variables such as Returns on asset (ROA), Returns on equity(ROE),Total debt to total asset(TD), Total debt to equity ratio(DE) on firm performance. Secondary data was employed using data derived from ten (10) manufacturing companies. From our findings, we observe that capital structure measures (total debt and debt to equity ratio) are negatively related to firm performance. It is hereby recommended that firms should use more of equity than debt in financing their business activities, in as much as the value of a business can be enhanced using debt capital. Hence firms should establish the point at which the weighted average cost of capital i...
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This paper examines the determinants of corporate capital structure of thirty-five firms listed on the Nigerian Stock Exchange between 2006 and 2012. Panel data methodology was employed and pooled Ordinary Least Squares was (OLS) used to estimate the coefficients of six firm-specific determinants. Results reveal that the three leverage ratios (Total Leverage Ratio, Long-Term Leverage Ratio and Short-Term Leverage Ratio) are negatively and significantly related with profitability. Firm size and asset tangibility are however, positively and significantly related with leverage proxies. The outcome of the study shows that Nigerian firms rely heavily on the use of retained earnings (internal source) and where funds raised are insufficient, they then seek for external source. This is in line with financial theory and provides evidence in support of Pecking Order Theory.