Capital Structure and Financial Performance of Selected Quoted Firms in Nigeria
- March 9, 2019
- Posted by: RSIS
- Category: Social Science
International Journal of Research and Scientific Innovation (IJRSI) | Volume VI, Issue II, February 2019 | ISSN 2321–2705
Yakubu Abubakar and Gbenga Joseph Olowe
Department of Accounting, Ahmadu Bello University, Zaria, Nigeria
Abstract:-This study examines the impact of Capital structure on Financial performance of selected quoted firms in Nigeria. The population of the study consists of ten (10) firms quoted on the Nigerian Stock Exchange as at 31st December 2018 out of which ten (10) firms were selected as samples for a period of seven (7) years from 2012 to 2018 based on purposeful sampling technique. The study uses multiple regressions as a tool for analysis. The study reveals that short term debt, long term debt and Debt equity showed a positive significant impact on Financial performance of selected quoted firms in Nigeria. The study concludes that Short term, long term debt and Debt equity influences Financial performance of selected quoted firms in Nigeria and therefore recommends that Security and Exchange Commission should encourage selected quoted firms to go for short term debt and long term debt as it improves financial performance.
Keywords: Capital structure, financial performance, short term debt, long term debt, firm size.
Capital structure has to do with the way a firm finances its overall operations and growth by using different sources of funds. It is seen as the mix of long-term debt, short-term debt, common equity, preferred equity. In the analysis of capital structure, the firm’s proportion of short- and long-term debt is required. A firm’s debt-to-equity (D/E) ratio provides insight into how risky a firm is. Usually, a company that is heavily financed by debt has a more aggressive capital structure and therefore poses risk to investors. This risk, however, may be the primary source of the firm’s growth.
Capital structure choice is an important decision for a firm. It is important not only from a return maximization point of view, but also this decision has a great impact on a firm’s ability to successfully operate in a competitive environment. The ability of companies to carry out their stakeholders’ needs is tightly related to capital structure. Therefore, this derivation is an important fact that we cannot omit. Capital structure in financial term means the way a firm finances their assets through the combination of equity, debt, or hybrid securities (Arulvel & Ajanthan 2013).