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Effects of Capital Structure on Firm’s Performance: Empirical Study of Manufacturing Companies in Nigeria

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  • Lawal Babatunde Akeem
  • Edwin Terer K.
  • Monica Wanjiru Kiyanjui
  • Adisa Matthew Kayode

Abstract

This research examines the effect of capital structure on firm’s performance with a case study of manufacturing companies in Nigeria from 2003 to 2012 with the purpose of providing a critical appraisal of the need and importance of capital structure. Descriptive and regression research technique was employed to consider the impact of some key variables such as Returns on asset (ROA), Returns on equity(ROE),Total debt to total asset(TD), Total debt to equity ratio(DE) on firm performance. Secondary data was employed using data derived from ten (10) manufacturing companies. From our findings, we observe that capital structure measures (total debt and debt to equity ratio) are negatively related to firm performance. It is hereby recommended that firms should use more of equity than debt in financing their business activities, in as much as the value of a business can be enhanced using debt capital. Hence firms should establish the point at which the weighted average cost of capital is minimal and maintain that gearing ratio so that the company’s value will not be eroded, as the firm’s capital structure is optimal at this point ceteris paribus.

Suggested Citation

  • Lawal Babatunde Akeem & Edwin Terer K. & Monica Wanjiru Kiyanjui & Adisa Matthew Kayode, 2014. "Effects of Capital Structure on Firm’s Performance: Empirical Study of Manufacturing Companies in Nigeria," Journal of Finance and Investment Analysis, SCIENPRESS Ltd, vol. 3(4), pages 1-4.
    • Handle: RePEc:spt:fininv:v:3:y:2014:i:4:f:3_4_4
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    Cited by:

    1. Md. Mehedi Hasan & Dr. Md. Hasan Uddin & Azom Khan, 2024. "Impacts of Cost of Capital on Firm Value and Profitability: Insights from the Cement Industry in Bangladesh," International Journal of Research and Innovation in Social Science, International Journal of Research and Innovation in Social Science (IJRISS), vol. 8(1), pages 890-899, January.
    2. Isah Serwadda, 2019. "The Effects of Capital Structure on Banks' Performance, the Ugandan Perspective," Acta Universitatis Agriculturae et Silviculturae Mendelianae Brunensis, Mendel University Press, vol. 67(3), pages 853-868.
    3. Henry Mugisha & Job Omagwa & James Kilika, 2021. "Capital structure, market conditions and financial performance of small and medium enterprises in Buganda Region, Uganda," International Journal of Research in Business and Social Science (2147-4478), Center for the Strategic Studies in Business and Finance, vol. 10(3), pages 276-288, April.
    4. Wan Mohd Nazri Wan Daud & Norlia Mat Norwani & Anizawati Ahmad Mansor & Wan Anisah Endut, 2016. "Does Financing Decision Influence Corporate Performance in Malaysia?," International Journal of Economics and Financial Issues, Econjournals, vol. 6(3), pages 1165-1171.
    5. 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.
    6. Md. Nur Alam Siddik & Sajal Kabiraj & Shanmugan Joghee, 2017. "Impacts of Capital Structure on Performance of Banks in a Developing Economy: Evidence from Bangladesh," IJFS, MDPI, vol. 5(2), pages 1-18, May.
    7. Adepoju Adeoba Asaolu, 2021. "Capital Structure and Firm Performance: A comparative Study of Oil & Gas and Manufacturing Sectors in the United States of America," Business and Management Studies, Redfame publishing, vol. 7(1), pages 29-44, March.
    8. Maniagi Musiega & Jared G. O. O. Rading’ & Fredrick Oruko, 2021. "Contribution of Satellite Campuses Financial Accountability and Resource Allocation on Financial Sustainability of Public Universities in Kenya," International Journal of Finance & Banking Studies, Center for the Strategic Studies in Business and Finance, vol. 10(4), pages 75-87, October.
    9. Ning Wu & Jingyi Zhao & Mohammed Musah & Zhiqiang Ma & Lijuan Zhang & Yutong Zhou & Yongzheng Su & Joseph Kwasi Agyemang & Juliana Anyei Asiamah & Siqi Cao & Linnan Yao & Kaodui Li, 2023. "Do Liquidity and Capital Structure Predict Firms’ Financial Sustainability? A Panel Data Analysis on Quoted Non-Financial Establishments in Ghana," Sustainability, MDPI, vol. 15(3), pages 1-21, January.
    10. Md. Ataur Rahman & Md. Sadrul Islam Sarker & Md. Joyen Uddin, 2019. "The Impact of Capital Structure on the Profitability of Publicly Traded Manufacturing Firms in Bangladesh," Applied Economics and Finance, Redfame publishing, vol. 6(2), pages 1-5, March.
    11. Hwerien Rosemary Idamoyibo, 2024. "Financial Structure and Corporate Profitability of Firms in Nigeria: Does Firm Age Act as a Moderator?," International Journal of Research and Innovation in Social Science, International Journal of Research and Innovation in Social Science (IJRISS), vol. 8(7), pages 2259-2271, July.

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