Dynamic Relationship Between Capital Structure and Quoted Manufacturing Firms’ Performance in Nigeria
International Journal of Economics, Finance and Management Sciences
Volume 7, Issue 3, June 2019, Pages: 82-87
Received: May 15, 2019;
Accepted: Jun. 18, 2019;
Published: Jul. 1, 2019
Views 242 Downloads 91
Oyedeji Rasheed Olarewaju, Department of Management and Accounting, Faculty of Management Sciences, Ladoke Akintola University of Technology, Ogbomoso, Oyo State, Nigeria
For so long, and most recently, relationship between capital structure and manufacturing firm’s performance has been an issue in financial world. Financial analysts are controversial in advising the investors on the best capital structure to employ while undertaking investment decisions. This paper investigates dynamic relationship between capital structure and quoted manufacturing firms’ performance in Nigeria from 1990-2016. Using panel unit root test to verify the stationarity property of the data, Pedroni conitegration tests and Panel Vector Error Correction Method (PVECM) are employed to examine the equilibrium among the variables as well as analysing the data. There is evidence of long run relationship between capital structure and firms’ performance in Nigeria as revealed by Cointegration test results. Results from PVECM show that, throughout the period i.e. both in the long run and short run, except itself, none of the variables’ shocks in the system significantly accounts for variations in the returns on asset (ROA), given variance error decomposition’s statistics. Also, both in the short run and long run, innovations from only equity (EQU) explains, on average, 1.76% variations to profit margin. Arising from these findings, the study could not find dynamic relationship between capital structure and firms’ performance. The study, therefore, recommends that manufacturing firms should be pragmatic when choosing capital structure outlays to enhance performance in their activities.
Oyedeji Rasheed Olarewaju,
Dynamic Relationship Between Capital Structure and Quoted Manufacturing Firms’ Performance in Nigeria, International Journal of Economics, Finance and Management Sciences.
Vol. 7, No. 3,
2019, pp. 82-87.
Copyright © 2019 Authors retain the copyright of this article.
This article is an open access article distributed under the Creative Commons Attribution License (http://creativecommons.org/licenses/by/4.0/
) which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.
Olokoyo, F. O. (2013). Capital Structure and Corporate Performance of Nigerian Quoted Firms: A Panel Data Approach. African Development Review, 25 (3), 1-21.
Akinsulire, O. (2014). Financial Management, 6th Edition, Ikeja, Ceemol Nig. Ltd.
Kinde, R. A. (2013). Impact of Firm Level Factors on Capital Structure: Evidence from Ethiopian Insurance Companies. Global Journal of management and Business Research 13 (4), 1-9.
Siddiqui, M. A. & Shoab, A, (2011). Measuring Performance through Capital Structure: Evidence from Banking Sector of Pakistan. African Journal of Business Management 5 (5), 1871-1879.
Tian, G. G. & Zeitun, R. (2007). Capital Structure and Corporate Performance: Evidence from Jordan. Australian Accounting Business and Finance Journal, 1 (4): 40-61.
De Angelo, H. & Masuli, R. W. (1980). Optimal Capital Structure under Corporate and Personal Taxation. Journal of Financial Economics, 8: 3-29.
Getzmann, A., Lang, S. & Spremann, K. (2010). Determinants of the Target Capital Structure and Adjustment Speed-evidence from Asian Capital Markets. European Journal of Financial Management, 1: 1-30.
Mishra, C. S. (2011) Determinants of Capital Structure – A Study of Manufacturing Sector PSUs in India. International Conference on Financial Management and Economics, 11, 247-252.
Ajeigbe, K. B., Fasesin, O. O. & Ajeigbe, O. M. (2013). Nigeria Ailing Industries and the Capital Structure Theory: A need for Concern. Australian Journal of Business and Management Research, 3 (8): 31-40.
Chechet I. L, Garba, S. L & Odudu, A. S (2013). Determinants of capital Structure in the Nigerian Chemical and Paints Sector. International Journal of Humanities and Social Science, 3 (15), 247-263.
Hasan, B., Ahsan, A. F. M. M., Rahaman, M. A., Alam, N. (2014). Influence of Capital Structure on Firm Performance: Evidence from Bangladesh. International Journal of Business and Management, 9 (5), 184-194.
Javed, T. Younas, W. & Imiran, M. (2014). Impact of Capital Structure on Firm Performance: Evidence from Pakistani Firms. International Journal of Academic Research in Economics and Management Sciences, 3 (5), 28-52.
Hossain, A. T. & Nguyen, D. X. (2016). Capital Structure, Firm Performance and the Recent Financial Crisis. Journal of Accounting and Finance, 16 (1), 76-89.
Nenu, E. A., Vintila, G. & Gherghina, S. V. (2018). The Impact of Capital Structure on Risk and Firm Performance: Empirical Evidence for the Bucharest Stock Exchange Listed Companies. International Journal of Financial Studies, 6 (41), 1-29.
Vatavu, S. (2015). The Impact of Capital Structure on Financial Performance in Romanian Listed Companies. Procedia Economics and Finance 32, 1314 – 1322.
Huang, G. & Song, F. M. (2006), The Determinants of Capital Structure: Evidence from China, China Economic Review, 17 (1), 14-36.