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Capital Structure and Corporate Performance of Nigerian Quoted Firms: A Panel Data Approach

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  • Felicia Olokoyo

Abstract

This paper presents empirical findings on the impact of leverage (debt's ratio) on firms' performance. Empirical results based on 2003 to 2007 accounting and marketing data for 101 quoted firms in Nigeria lend some support to the pecking order and static tradeoff theories of capital structure. The study employed panel data analysis by using fixed-effect estimation, random-effect estimation and a pooled regression model. The usual identification tests and Hausman's Chi-square statistics for testing whether the fixed effects model estimator is an appropriate alternative to the random effects model were also computed for each model. A firm's leverage was found to have a significant negative impact on the firm's accounting performance measure (ROA). An interesting finding is that all the leverage measures have a positive and highly significant relationship with the market performance measure (Tobin's Q). The study further reveals a salient fact that Nigerian firms are either majorly financed by equity capital or a mix of equity capital and short-term financing. It is therefore suggested that Nigerian firms should try to match their high market performance with real activities that can help make the market performance reflect on their internal growth and accounting performance.

Suggested Citation

  • Felicia Olokoyo, 2013. "Capital Structure and Corporate Performance of Nigerian Quoted Firms: A Panel Data Approach," African Development Review, African Development Bank, vol. 25(3), pages 358-369.
    • Handle: RePEc:adb:adbadr:2078
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    Cited by:

    1. Nidhi Bansal & Anil K. Sharma, 2016. "Audit Committee, Corporate Governance and Firm Performance: Empirical Evidence from India," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 8(3), pages 103-116, March.
    2. Silvia Jencova & Igor Petruska & Marta Lukacova, 2021. "Relationship Between ROA and Total Indebtedness by Threshold Regression Model," Montenegrin Journal of Economics, Economic Laboratory for Transition Research (ELIT), vol. 17(2), pages 37-46.
    3. Pedro Manuel Nogueira Reis & António Pedro Soares Pinto, 2022. "How Do Banking Characteristics Influence Companies’ Debt Features and Performance during COVID-19? A Study of Portuguese Firms," IJFS, MDPI, vol. 10(4), pages 1-29, October.
    4. Ibhagui, Oyakhilome W. & Olokoyo, Felicia O., 2018. "Leverage and firm performance: New evidence on the role of firm size," The North American Journal of Economics and Finance, Elsevier, vol. 45(C), pages 57-82.
    5. Saurabh Chadha & Anil K. Sharma, 2015. "Capital Structure and Firm Performance: Empirical Evidence from India," Vision, , vol. 19(4), pages 295-302, December.
    6. Vlora Prenaj & Iliriana Miftari & Besnik Krasniqi, 2023. "Determinants of the Capital Structure of Non-Listed Companies in Kosovo," Economic Studies journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 1, pages 36-50.
    7. Bassam M. Abu-Abbas, Turki Alhmoud, Fatima A. Algazo, 2019. "Financial leverage and firm performance: evidence from Amman stock exchange," European Journal of Comparative Economics, Cattaneo University (LIUC), vol. 16(2), pages 207-237, December.
    8. Wang, Wei & Huang, Jun & Wang, Haibo & Alidaee, Bahram, 2022. "Internal and external analysis of community banks' performance," International Review of Financial Analysis, Elsevier, vol. 84(C).
    9. T.O. Okegbe & Onyinye Maria-Regina Eneh & Amahalu Nestor Ndubuisi, 2019. "Effect of Firm Characteristics on Capital Structure of Deposit Money Banks Listed on Nigeria Stock," International Journal of Academic Research in Accounting, Finance and Management Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Accounting, Finance and Management Sciences, vol. 9(2), pages 198-210, April.

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