Capital Structure and Firm Performance in Nigeria
Keywords:
Capital structure, Firm performance, Long-term debts, Short-term debts, Return on assets, Nigeria
Abstract
This study analysed how the capital structure of Nigerian Exchange Group-listed industrial companies affected their financial results. Capital structure was estimated using data on long-term debt to short-term debt ratios, and company performance was estimated using return on assets. Thirty-one (31) manufacturing companies were surveyed between 2012 and 2021, and the analytical approach consisted of descriptive and inferential statistics. The study's findings indicated that the ratio of short-term to long-term debt had a substantial, beneficial effect on the performance of manufacturing companies. Findings suggest that manufacturing company management should improve short- and long-term debt ratios by making the best use of available resources to increase the company's value for its shareholders. In addition, industrial companies should finance their capital structure using short-term obligations rather than long-term debts.
References
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14. Modigliani, F. & Miller, M. H. (1958).The cost of capital, corporate finance and the theory of investment. American Economic Review,48, 261-97
15. Nassar, S. (2016).The impact of capital structure on the financial performance of the firms: Evidence from Borsa Istanbul. Journal of Business and Financial Affairs, 5(2), 1-4
16. Nenu, E. A., Vintila, G. & Gherghina, S.C. (2018). The impact of capital structure on risk and firm performance: Empirical evidence for the Bucharest stock exchange listed companies. International Journal of Financial Studies, 6(41), 1-29
17. Oino, I & Ukaegbu (2015). The impact of profitability on capital structure and speed of adjustment: An empirical examination of selected firms in Nigeria Stock Exchange. Research in International Business and Finance 35, 111-121.
18. Quan, V. D. H. (2020). A national justification of the pecking-order hypothesis to the choice of sources of financing. Management Research News, 12(12), 74-90.
19. Salawu, R. O. (2007). An empirical analysis of the capital structure of selected quoted companies in Nigeria. The International Journal of Applied Economics and Finance, 1(1), 16-28.
20. Yinusa, O. G., Ismail, A., Yulia, R. & Olawale, L.S. (2019). Capital structure and firm performance in Nigeria. African Journal of Economic Review, VII(I), 31-56
2. Akinyomi, O. J. (2013). Effect of capital structure on firm performance: Evidence from the Nigerian manufacturing industry. International Journal of Innovative Research and Studies, 2(9), 469-480
3. Al-Matari, E. N, Al-Swidi, A.K. & Fadzil, F.H. (2014). The measurements of firm performance’s dimensions. Asian Journal of Finance and Accounting, 6(1), 24-49
4. Avci, E. (2016). Capital structure and firm performance: An application on manufacturing industry. Marmara Universitesi Iktisadive Idari Bilmler, 38, 15-30
5. Chakraborty, I. (2010). Capital structure in an emerging stock market: Case of India. Research in International Business and Finance, 24, 295-314
6. Chen, J. J. (2014). Determinants of capital structure of Chinese-listed companies. Journal of Business Research 57, 1341-1351.
7. Damodaran, D. (2001). Corporate finance: Theory and practice (2nd edition). New York: Wiley Publishers
8. Fama E. F. & Miller M.H. (1972). The theory of finance. Hinsdale, Illinois: Dryden Press
9. Fosu, S. (2013). Capital structure, product market competition and firm performance: Evidence from South Africa. The Quarterly Review of Economics and Finance, 53, 140-151
10. Frank, M. Z. & Goyal, V.K. (2021). The effect of market conditions on capital structure adjustment. Finance Research Letters, 1(1), 318-350.
11. Heinkel, R. (1982). A theory of capital structure relevance under imperfect information. Journal of Finance, 37(5), 1141-1150.
12. Iavorskyi, M. (2013). The impact of capital structure on firm performance: Evidence from Ukraine. A thesis submitted in partial fulfilment of the requirements for the degree of MA in Financial Economics, Kyiv School of Economics, Ukraine, pp.1-43
13. Modigliani, F. & Miller, M. (1958). The cost of capital, corporation finance and the theory of investment. American Economic Review 48, 261-297.
14. Modigliani, F. & Miller, M. H. (1958).The cost of capital, corporate finance and the theory of investment. American Economic Review,48, 261-97
15. Nassar, S. (2016).The impact of capital structure on the financial performance of the firms: Evidence from Borsa Istanbul. Journal of Business and Financial Affairs, 5(2), 1-4
16. Nenu, E. A., Vintila, G. & Gherghina, S.C. (2018). The impact of capital structure on risk and firm performance: Empirical evidence for the Bucharest stock exchange listed companies. International Journal of Financial Studies, 6(41), 1-29
17. Oino, I & Ukaegbu (2015). The impact of profitability on capital structure and speed of adjustment: An empirical examination of selected firms in Nigeria Stock Exchange. Research in International Business and Finance 35, 111-121.
18. Quan, V. D. H. (2020). A national justification of the pecking-order hypothesis to the choice of sources of financing. Management Research News, 12(12), 74-90.
19. Salawu, R. O. (2007). An empirical analysis of the capital structure of selected quoted companies in Nigeria. The International Journal of Applied Economics and Finance, 1(1), 16-28.
20. Yinusa, O. G., Ismail, A., Yulia, R. & Olawale, L.S. (2019). Capital structure and firm performance in Nigeria. African Journal of Economic Review, VII(I), 31-56
Published
2023-02-13
How to Cite
Joel, I. C., & Idumesaro, J. (2023). Capital Structure and Firm Performance in Nigeria. Central Asian Journal of Innovations on Tourism Management and Finance, 4(2), 91-96. https://doi.org/10.17605/OSF.IO/B9SYE
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