Capital Structure and Profitability of Selected Listed Companies in Nigeria

International Journal of Research and Scientific Innovation (IJRSI) | Volume VII, Issue XII, December 2020 | ISSN 2321–2705

Capital Structure and Profitability of Selected Listed Companies in Nigeria

Adekola Adeola Adebayo^1*, Folajinmi Festus Adegbie² & Rafiu Oyesola Salawu^3
1Department of Accounting, The Polytechnic, Ibadan, Nigeria
²Department of Accounting, Babcock University, Nigeria
³Department of Management and Accounting, Obafemi Awolowo University, Nigeria
*Corresponding author

ABSTRACT
Capital structure of firms is a topical issue that propels the sustainability of concerns. The study investigated capital structure and performance of selected listed companies in Nigeria. This study adopted ex-post facto research design. Secondary data were sourced from the audited annual reports of the sampled firms. The population comprised 170 listed companies on Nigerian Stock Exchange (NSE) as at December 2019. The sample consisted of 60 selected companies, using purposive sampling technique to cover various sectors. Pre-estimation tests were conducted, using correlation matrix and independent t-test. The post-estimation tests included linearity, heteroskedasticity, Breusch-Godfrey serial correlation Langragian Multiplier and normality test. Data were analyzed using descriptive and inferential statistics. The result shows R2 = 0.199, 0.527 and Adj. R2 = 0.752. The study revealed that capital structure had significant effect on performance of selected companies in Nigeria. Debt ownership had positive and significant effect on return on capital employed. Equity ownership had positive significant effect on the dividend growth. The study concluded that capital structure affected performance of selected listed companies in Nigeria and therefore recommended that government should formulate a policy that will encourage a balanced capital structure of listed companies so as to enhance performance that creates value for stakeholders and ensure the going concern of the firm

Keywords: Capital structure, Dividend growth, Return on Capital Employed, Performance.

1. Introduction

According to Nenu, Ventila and Gherghina (2017), capital structure remains a challenge, even if many theorists have tried to explain the debt ratio variation across companies and pioneering studies on capital structure based their hypotheses on perfect capital market conditions that lead to rather theoretical assumptions. Organisations in financing their capital expenditure are usually faced with the decision of financing mode and theoretically there are two broad sources of financing which are equity and debt (Onaolapo, Kajola & Nwidobie, 2015). It is clear that capital structure is a significant management decision as it greatly influences the owner’s equity return, his risks as well as the market value of the shares and so it is incumbent on the management of a company to develop an appropriate capital structure, which is most suitable to the company’s operation (Salawu, 2009).

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