Capital Structure and Corporate Performance of Selected Firms on the Nigerian Stock Exchange
top of page
Asian Institute of Research, Journal Publication, Journal Academics, Education Journal, Asian Institute
Asian Institute of Research, Journal Publication, Journal Academics, Education Journal, Asian Institute

Economics and Business

Quarterly Reviews

ISSN 2775-9237 (Online)

asian institute research, jeb, journal of economics and business, economics journal, accunting journal, business journal, managemet journal
asian institute research, jeb, journal of economics and business, economics journal, accunting journal, business journal, managemet journal
asian institute research, jeb, journal of economics and business, economics journal, accunting journal, business journal, managemet journal
asian institute research, jeb, journal of economics and business, economics journal, accunting journal, business journal, managemet journal
crossref
doi
open access

Published: 16 September 2019

Capital Structure and Corporate Performance of Selected Firms on the Nigerian Stock Exchange

Babatunde Afolabi, Bolade Oyelekan, Olasusi Akinwale

Afe Babalola University, Central Bank of Nigeria

asian institute research, jeb, journal of economics and business, economics journal, accunting journal, business journal, management journal

Download Full-Text Pdf

doi

10.31014/aior.1992.02.03.136

Pages: 891-899

Keywords: Capital Structure, Firms, Nigerian Stock Exchange, Corporate Performance

Abstract

The capital structure of a firm is very important to the firm's successful operation. The objective of the study was to analyze the effects of Capital Structure on Corporate Performance of selected firms on the Nigerian Stock Exchange in Nigeria from 2011 to 2017. The study employed data from five multinational companies, using Micro Panel data as the estimated technique. Both the Random Effect Model and the Fixed Effect Model were estimated, and the Hausman effect was carried out to determine the appropriate model. The result shows that the effect of liquidity of the firms is negatively related to return on Asset (ROA). Hence, keeping funds in non-interest yielding form does not increase the ROA of the firms. Similarly, the short term debt financing (CLA) is negatively related to ROA. However, there is a positive relationship between long term debt financing and ROA. It noted that short term debt financing requires the payment of the debt in a short term, and this may not be convenient for the firms, and impair their performance. However, repaying long term debt may be convenient, and this may have a positive effect on the performance of the firms. Management of the quoted firms in Nigeria is strongly advised to increase the use of equity capital in financing to improve the earnings of their firms.

References

  1. Abbas, A., Bashir, Z. Manzuor, S. and Akram, M.N. (2013), “Determinants of firm’s financial performance: an empirical study on textile sector of Pakistan," Business and Economic Research, Vol. 3, No 2, pp 77 -86.

  2. Abor, J. (2007),” Debt policy and performance of SMEs: evidence from Ghanaian and South Africa firms," Journal of Risk and Finance, Vol. 8, pp 364 -79.

  3. Aburime, U. (2005) Determinants of bank profitability: company-level evidence from Nigeria. University of Nigeria, Enugu Campus.

  4. David, D. and Olorunfemi S(2010): “ Capital Structure and Corporate Performance in Nigeria” Journal of Mathematics and Statistics. Vol. 6 no 2, Pp 168 -173

  5. Al-Tamimi, H., and Hassan, A. (2010) Factors Influencing Performance of the UAE Islamic and   Conventional      National Banks. Department of Accounting, Finance and Economics, College of Business Administration, University of Sharjah.

  6. Anderson, M and Williamsson, M (2001), Kapitalstrucktur SMEs, Master Thesis, Jonkoping “Jonkoping International Business School, Jonkoping university.

  7. Barbosa, N, and Louri, H. (2005):"Corporate Performance: Does Ownership Matter? A Comparison of       Foreign- and Domestic-Owned Firms in Greece and Portugal". Review of Industrial Organization, Vol 27 No.1, Pp73-102.

  8. Bauer, P. (2004), Determinants of capital structure: empirical evidence from Czech, Journal of Economics and Finance, Vol 54, pp 1 – 21.

  9. Deping, C. and Yongsheng C. (2011). “The relationship research between the corporate performance,        ownership concentration and equity balance degree: empirical studies of small and medium-sized enterprise from 2007 to 2009”. Journal of Accounting Research. Vol.1. Pp 38-43.

  10. Fosu, S. (2013), “Capital structure, product market. Competition and firm performance: evidence from South Africa,” University of Leicester, UK, Working paper No 13/11.

  11. Frank, Z.M and Goyal, V.K (2003),” Testing the pecking order theory of capital structure,” Journal of Financial Economics, Vol. 67, pp 217 -248.

  12. Harris, M. and Raviv, A (1990), “Capital Structure and the informational role of debt”, Journal of Finance Vol 45, pp 321 – 349

  13. Jordan, J; Lowe, J. and Taylor, P. (1998). ‘Strategy and financial policy in UK small firms’. Journal of Business Finance and Accounting, January/March. Pp 1–27.

  14. Kamsvag, C. (2001). Företagochfinansiering: problem ochmöjligheterförsmåföretag. Arvika:        Företagarnasriks organization: FR

  15. Khan, A (2012): "The relationship of capital structure decisions with firm performance: a study of the        engineering sector of Pakistan". International Journal of Accounting and Financial Reporting. Vol. 2, No 1 Pp245 - 262 13.

  16. Kyereboah – Coleman, A. (2007), “Corporate governance and firm performance in Africa: A Dynamic panel data analysis”, International conference on corporate governance in emerging markets. Sabanci University, Istanbul, Turkey.

  17. Marthur, S.S. and Kenyan, A. (1997), Creating Value: Shaping Tomorrow’s Business, Butterworth            Heinemann, Oxford Auckland, Boston.

  18. Masulis, R. W. (1983), “the Impact of capital structure change on firm’s value: some Estimates”. The Journal of Finance. Vol. 38. No 1. Pp 107–126.

  19. Miller, M. H. (1977), “Debt and Taxes.” Journal of Finance, 32 261–275.

  20. Mirza, S.A and Javed, A. (2013), “Determinants of financial performance of a firm: case of Pakistani Stock Market”, Journal of Economics and International Finance, Vol. 5, No, pp 43 -52.

  21. Modigliani, F and Miller, M.H (1958). “The cost of capital, corporate finance and theory of investment”. America Economic Review, Vol. 48. pp 261 -97

  22. Modigliani, F., and M. H. Miller. (1963), “Corporate income taxes and the cost of capital: a correction.” American Economic Review, Vol 53 433–443.

  23. Ogebe, O, Ogebe J and Alewi K (2013): "The Impact of capital structure on firm's performance in Nigeria". MPRA Paper No. 46173

  24. Olowe, R.A (2011), Financial Management: concepts, financial system and business Frame, Third Edition, Ibadan University Press, Ibadan Nigeria.

  25. Pandey, I.M (2010). Financial Management, Tenth Edition, Vikas Publishing Home PVT Ltd, New Delhi.

  26. Peterson, M.A and Rojan, R.G (1994), “The benefits of lending relationship: evidence from small business data”, Journal of Finance, Vol 49, No 1, pp 3-37.

  27. Safarova, Y. (2010), “Factors that determine firm performance of New Zealand listed companies”, Dissertation submitted to Auckland University of Technology.

  28. San, O. T. and Heng, T. B. (2011), “Capital structure and corporate performance of Malaysian construction sector”. International Journal of Humanities and Social Science, Vol 1, No         2, pp 28 36.

  29. Tian, C. G. and Zeitun, R. (2007), “Capital structure and corporate performance: evidence from Jordan”. Accounting, Business and Finance Journal. Vol. 1. Pp 40 - 53.

  30. Valentin, C., (2012), “Determinants of corporate financial performance”, Retrieved online from    www.dafi.asce.ro/revista/6/costea valentin.pdf on 13th May, 2014.

  31. Wald, J.K (1999), “How firm characteristics affect capital structure: an international comparison”, Journal of Financial Research, Vol 22, No 2, pp 161 – 187.

bottom of page