Effect of Capital Structure on Profitability of Selected Quoted Agricultural Companies in Nigeria

International Journal of Research and Scientific Innovation (IJRSI) | Volume VI, Issue VIII, August 2019 | ISSN 2321–2705

Effect of Capital Structure on Profitability of Selected Quoted Agricultural Companies in Nigeria

Joseph O. Elom, Leonard C. Uguru

Department of Accountancy, Ebonyi State University, Abakaliki, Nigeria

Abstract: – This study investigated the effect of capital structure on profitability of selected quoted agricultural companies in Nigeria. The study specifically ascertained the extent to which capital structure ratios; debt, equity, debt-to-equity and capitalization ratios influence profitability of selected quoted agricultural Companies in Nigeria within the time frame of 12 years; (2006-2017). An ex-post facto research design was adopted involving time series panel data sourced from the annual financial statements of four selected quoted agricultural companies in Nigeria. The formulated hypotheses were tested considering the fixed effect model (FEM) multiple regression approach using ordinary least square (OLS) equation to estimate the influence of explanatory variables on explained variable with a control variable; assets tangibility to moderate the differences in the companies’ assets with the aid of E-view 9.0 version. The study found that debt and debt-to-equity ratios exert negative and significant influence on profitability of quoted agricultural companies in Nigeria, while, equity and capitalization ratios have positive and significant effect on profitability of quoted agricultural companies in Nigeria. The implication of the findings is that quoted agricultural companies in Nigeria will be profitably sound with increased level of equity and capitalization ratios in their capital base vi-sa-vis their business operations. The study, therefore recommends that there is need for the quoted agricultural companies in Nigeria to increase their equity funding and capitalization ratio while they should reduce their debts and debt-to-equity mix in their capital structure base.

Keywords: Capital Structure, Profitability, Nigeria, Return on Asset, Capitalization ratio, Agricultural Companies.

I. INTRODUCTION

The relationship between capital structure and profitability performance in any company has been a focus of incredible milestone over the past decades. One of the main objectives of every business concern is profit maximization. But to attain such objective, companies’ capital structure/mix is a factor not to be jettisoned with. This argument was supported by Mwangi (2014) who argued that most company managers lack adequate knowledge on the dynamics of capital structure as it relates to company’s profit performance.

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