Effects of Capital Structure on Corporate Performance of Healthcare Sector in Nigeria
- August 11, 2019
- Posted by: RSIS
- Category: Social Science
International Journal of Research and Innovation in Social Science (IJRISS) | Volume III, Issue VII, July 2019 | ISSN 2454–6186
Effects of Capital Structure on Corporate Performance of Healthcare Sector in Nigeria
Ajuzie Oluchi, Ugwuka Nkechi
Department of Banking and Finance, Faculty of Management Science, Lagos State University, Nigeria
Abstract: – This paper examined the effects of capital structure on performance of quoted firms in the Nigerian healthcare sector. The objective of the study is to establish the empirically effects of level of leverage in the capital structure of firms in Nigerian healthcare sector using return on assets and tobin’s Q as proxies for performance. The study employed panel data, collected from the audited annual accounts of selected firms in the Healthcare sector for the period 2007-2016. Data collected was analyzed using the random effects model. Findings showed that leverage indicators haves significant positive effect on ROA and Tobin’s Q. This may not be farfetched from the imperfections in the nation’s financial market. The study recommended that firms in Nigerian healthcare sector should be meticulous in the debt equity composition of their operation to enhance performance optimally.
Key words: – Capital Structure, Corporate performance, Leverage.
I. INTRODUCTION
Capital structure represents the major claims to a corporation’s assets. This includes the different types of equities and liabilities (Olokoyo 2013). The debt-equity mix can take any of the following forms: 100% equity: 0% debt, 0% equity: 100% debt and X% equity: Y% debt. From these three alternatives, option one is that of the unlevered firm, that is, the firm shuns the advantage of leverage (if any). Option two is that of a firm that has no equity capital. This option may not actually be realistic in the real life economic situation, because no provider of funds will invest his money in a firm without equity capital. This partially explains the term “trading on equity”, that is, it is the equity element that is present in the firm’s capital structure that encourages the debt providers to give their scarce resources to the business. Option three is the most realistic one in that, it combines both a certain percentage of debt and equity in the capital structure and thus, the advantages of leverage (if any) is exploited.
