The Impact of Capital Structure and Liquidity on Corporate Returns in Nigeria: Evidence from Manufacturing Firms
AbstractThe importance of capital structure to corporate financial stability, growth and adequate returns and liquidity cannot be undermined most especially in the midst of recent global financial crises has led to urgent need to embark on this study. The paper used microdata sourced from the financial statements of 10 selected firms covering 2002-2006 to pursue its investigations. The data were arranged in a cross-sectional time series fashion. Specifically, the microdata were analyzed using OLS methodology that included log-linear least squares application to conduct its tests and analyses. We found negative and significant influence of value of long-term debt, ratios of long-term debt to total liability, and ratios of short-term debt to total liability, and ratios of short-term debt to total liability; and equity capital to total liability, on returns; and positive and significant effects of domestic liquidity rate, ratios of long-term debt to equity capital and value of short-term debt, on profitability. Overall, results showed that long-term debt values lead profits under normal OLS function, followed by ratios of long-term debt to equity; short-term debt to total liability, and long-term debt to total liability in descending order of magnitude. Under log-linear function, domestic liquidity leads returns on equity, closely followed by ratios of long-term debt to total liability, and long-term debt values ranked third. It is therefore recommended that corporate firms in Nigeria (including other African countries) should strive to always maintain a balanced proportion of long-term debts in their capital structure mix; and that both the financial system (including economic system) and the corporate enterprises should always endeavor to uphold a policy of maintaining an adequate domestic liquidity rating for there to be sustained increases in corporate growth and profitability in the years ahead.
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Bibliographic InfoArticle provided by Human Resource Management Academic Research Society, International Journal of Academic Research in Accounting, Finance and Management Sciences in its journal International Journal of Academic Research in Accounting, Finance and Management Sciences.
Volume (Year): 2 (2012)
Issue (Month): 3 (July)
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Web page: http://hrmars.com/index.php/pages/detail/Accounting-Finance-Journal
Capital structure; liquidity; long-term debt; short-term debt; profitability; corporate returns; Interest rates; inflation rate; reserves;
Find related papers by JEL classification:
- G1 - Financial Economics - - General Financial Markets
- G2 - Financial Economics - - Financial Institutions and Services
- G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
- G19 - Financial Economics - - General Financial Markets - - - Other
- D5 - Microeconomics - - General Equilibrium and Disequilibrium
- M14 - Business Administration and Business Economics; Marketing; Accounting - - Business Administration - - - Corporate Culture; Diversity; Social Responsibility
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