An Empirical Analysis of Capital Structure on Firms’ Performance in Nigeria
ISSN: 2278-3369
International Journal of Advances in Management and Economics Available online at www.managementjournal.info
RESEARCH ARTICLE
An Empirical Analysis of Capital Structure on Firms’ Performance in Nigeria
Taiwo Adewale Muritala*
Department of Economics and Financial Studies, Fountain University Osogbo, Osun State, Nigeria. *Correspondence E-mail: muritaiwo@yahoo.com
Abstract
This paper examines the optimum level of capital structure through which a firm can increase its financial performance using annual data of ten firms spanning a five-year period. The results from Im, Pesaran & Shine unit root test show that all the variables were non-stationary at level. The study hypothesized negative relationship between capital structure and operational firm performance. However, the results from Panel Least Square (PLS) confirm that asset turnover, size, firm’s age and firm’s asset tangibility are positively related to firm’s performance. Findings provide evidence of a negative and significant relationship between asset tangibility and ROA as a measure of performance in the model. The implication of this is that the sampled firms were not able to utilize the fixed asset composition of their total assets judiciously to impact positively on their firms’ performance. Hence, this study recommends that asset tangibility should be a driven factor to capital structure because firms with more tangible assets are less likely to be financially constrained. Keywords: Capital structure, Corporate finance, Firms, Performance, Regression Nigeria.
Jel Codes: C20; D21; G3; G32; L1; N27
Introduction
Capital structure is defined as the means by which an organization is financed. It is also a company’s proportion of short and long term debt and is considered when analyzing capital structure. It is the mix of debt and equity maintained by a firm. The capital structure choice has been an issue of great interest in the corporate finance literature. This is due to
International Journal of Advances in Management and Economics Available online at www.managementjournal.info
RESEARCH ARTICLE
An Empirical Analysis of Capital Structure on Firms’ Performance in Nigeria
Taiwo Adewale Muritala*
Department of Economics and Financial Studies, Fountain University Osogbo, Osun State, Nigeria. *Correspondence E-mail: muritaiwo@yahoo.com
Abstract
This paper examines the optimum level of capital structure through which a firm can increase its financial performance using annual data of ten firms spanning a five-year period. The results from Im, Pesaran & Shine unit root test show that all the variables were non-stationary at level. The study hypothesized negative relationship between capital structure and operational firm performance. However, the results from Panel Least Square (PLS) confirm that asset turnover, size, firm’s age and firm’s asset tangibility are positively related to firm’s performance. Findings provide evidence of a negative and significant relationship between asset tangibility and ROA as a measure of performance in the model. The implication of this is that the sampled firms were not able to utilize the fixed asset composition of their total assets judiciously to impact positively on their firms’ performance. Hence, this study recommends that asset tangibility should be a driven factor to capital structure because firms with more tangible assets are less likely to be financially constrained. Keywords: Capital structure, Corporate finance, Firms, Performance, Regression Nigeria.
Jel Codes: C20; D21; G3; G32; L1; N27
Introduction
Capital structure is defined as the means by which an organization is financed. It is also a company’s proportion of short and long term debt and is considered when analyzing capital structure. It is the mix of debt and equity maintained by a firm. The capital structure choice has been an issue of great interest in the corporate finance literature. This is due to
References: Taiwo Adewale Muritala | Sep.-Oct. 2012 | Vol.1 | Issue 5|116-124 Available online at www.managementjournal.info European J Taiwo Adewale Muritala | Sep.-Oct. 2012 | Vol.1 | Issue 5|116-124 124