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Capital Structure And Profitability Of Quoted Companies In Nigeria

Author

Listed:
  • AMOS O. AROWOSHEGBE. Ph.D; ACA.

    (DEPARTMENT OF ACCOUNTING,AMBROSE ALLI UNIVERSITY, EKPOMA, EDO STATE, NIGERIA)

  • JEREMIAH O. IDIALU. Ph.D; FCA.

    (DEPARTMENT OF ACCOUNTING,AMBROSE ALLI UNIVERSITY, EKPOMA, EDO STATE, NIGERIA)

Abstract

The study examined the relationship of capital structure to profitability of quoted firms in Nigeria. The study was based on a panel data set from 1996 to 2010 comprising sixty non – financial companies. The study specified two panel regression models. Two profitability measures: Net Profit Margin (NPM) and Operating Profit Margin (OPM) were taken as the dependent variables respectively. The principal explanatory variable for each of the models was Debt Ratio (DR). The results of the study indicated that there was a significant negative relationship between capital structure and profitability of quoted companies in Nigeria. Indeed, the results the Pecking order theory that profitable firms do not target an optimal level of leverage to balance the benefits and costs of debt financing. Rather, firms use retained earnings first, then debts and finally equity. Such firms would actually be paying high tax charges and also high operating costs arising from over dependence on the money market for their funds requirements. It was recommended that appropriate fiscal policies, relevant capital market institutional and legal framework should be put in place. These measures, we believe, will ensure better access to funds and reduce the cost of doing business.

Suggested Citation

  • AMOS O. AROWOSHEGBE. Ph.D; ACA. & JEREMIAH O. IDIALU. Ph.D; FCA., 2013. "Capital Structure And Profitability Of Quoted Companies In Nigeria," International Journal of Business and Social Research, MIR Center for Socio-Economic Research, vol. 3(3), pages 99-106, March.
    • Handle: RePEc:mir:mirbus:v:3:y:2013:i:3:p:99-106
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    Cited by:

    1. Quazi Nur Alam & Janifar Alam & Susmita Dev Burman & Md. Tanvirul Hoque, 2020. "Impact of Debt Capital on Firm’s Performance:A Study on the Textile Companies Listed in Dhaka Stock Exchange Limited (DSE)," International Journal of Science and Business, IJSAB International, vol. 4(12), pages 106-114.
    2. Babatunde Yusuf & Akinwunmi Onafalujo & Khadijah Idowu & Yusuf Soyebo, 2014. "Capital Structure and Profitability of Quoted Firms: The Nigerian Perspective (2000-2011)," Proceedings of International Academic Conferences 0202135, International Institute of Social and Economic Sciences.
    3. Swalhah Ibrahim Yusuf & Samuel M. Mwakubo & Scaver N.Mwakachola, 2019. "The Effect of Capital Structure Gearing Levels on Financial Performance of Public and Private Sector Firms in Kenya¡¯s Coastal Counties," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 11(3), pages 99-126, March.
    4. Sohail Younus & Khurram Ishfaq & Muhammad Usman & Muhammad Azeem, 2014. "Capital Structure and Financial Performance: Evidence from Sugar Industry in Karachi Stock Exchange Pakistan," 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. 4(4), pages 272-279, October.

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