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Capital Structure and Financial Performance of Listed Manufacturing Firms in Nigeria

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Capital Structure and Financial Performance of Listed Manufacturing Firms in Nigeria.

ABSTRACT

There exists a divergence of opinion in literature on the relationship between capital structure and firms financial performance.

This mix of opinions makes the direction of the relationship between debt holders and equity holders to be controversial.

Therefore, this study investigated the impact of capital structure on financial performance of listed manufacturing firms in Nigeria.

The study formulated four hypotheses and used generalized least square multiple regression to analyze the secondary data extracted from the annual reports and accounts of the 31 sampled firms for the period 2009 to 2014.

The study found that total debt, long-term debt and short-term debt have significant impact on the financial performance of listed manufacturing firms in Nigeria.

The study also found that total debt to total equity has no significant effect on the financial performance of the firms.

INTRODUCTION

The nature and extent of the relationship between capital structure and financial performance of firms have attracted attention in the literature of finance.

The capital structure involves the decision about the combination of the various sources of funds a firm uses to finance its operations and capital investments.

These sources include the use of long-term debt finance called debt financing, as well as preferred stock and common stock also called equity financing.

One of the most important goals of financial managers is to maximize shareholders’ wealth through determination of the best combination of financial resources  for a company and maximization of the company‟s value by determining where to invest their resources.

Capital structure represents the major claims to a corporation‟s asset. This includes the different types of equities and liabilities (Riahi-Belkaoui, 1999).

The debt-equity mix can take any of the following forms: 100% equity: 0% debt, 0% equity: 100% debt; and X% equity: Y% debt.

From these three alternatives, the first option is that of the unlevered firm, that is, the firm shuns the advantage of leverage (if any).

REFERENCES

Appah, E., Okoafor, E.O & Bariweni, B. (2013) Capital Structure and the Operating Performance of Quoted Firms in the Nigerian Stock Exchange. Research Journal of Finance and Accounting, 4 (5), 2222-1697.

Aransiola, S. Y. & Oluwadetan, A. (2015). Capital structure and profitability: A critical analysis of quoted manufacturing companies in Nigeria. American Journal of Economics, Finance and Management, 1(5), 369-376.

Babalola, Y.S. (2014). Triangulation Analysis of Capital Structure and Firms Performance in Nigeria. East Ukrainian National University. 69(12), 75-82.

Berger, A. N & Bonaccorsi, D. P. (2006), Capital Structure and Firm Performance: A New Approach to Testing Agency Theory and an Application to the Banking Industry„, Journal of Banking and Finance, 30, 1065-1102.

Bokpin, G.A., Graham, J., Harvey, C. & Michaely, R. (2010). Risk Exposure and Corporate Financial Policy on the Ghana Stock Exchange. The Journal of Risk Finance, 11(3), 323-332.

Cengiz, T., Yunus, K. & Sukriye, G.R. (2013). The Effects of Capital Structure Decisions on Firm Performance Evidence from Turkey. International Conference on Economics and Social Sciences, 13, 137-142.

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