CAPITAL STRUCTURE AND PERFORMANCE OF MANUFACTURING FIRMS IN NIGERIA
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Abstract
The study is set to investigate capital structure and performance of oil and gas companies in Nigeria, by employing various indicators such as return on equity (ROE) short-term debt ratio (STDR), long term debt ratio (LTDR), total debt ratio (TDR) and total debt to equity ratio (TDER). The data used for the study were sourced from the NSE fact book Q2021 and annual financial reports of the purposefully selected quoted Manufacturing firms on Nigerian Exchange Limited (NGX) for the period 2014-2023 (10years). The study adopted the Panel Least Squares estimation technique for all the series employed.
The findings of the study revealed that long term debt (LTDR), short term debt (STDR),
and total debts (TDR) are positively related to financial performance (ROE) of
manufacturing firms. Furthermore, long term debt ratio and total debt ratio (that is
leverage) are significantly related to manufacturing firms’ financial performance (ROE).
In addition, short term debt ratio and total-debt equity ratio have no significant influence on manufacturing firms’ financial performance. While, short debt has positive influence on manufacturing firms’ financial performance, total debt-equity ratio has a negative influence on performance. Hence, long term debt rather than short term debt and debt equity ratio is the significant determinant of financial performance (ROE) of
manufacturing firms in Nigeria. The study recommends that the managers of the nation’s manufacturing firms should strive to boost return to equity owners by increasing theirs use of debts, particularly long term debts in their capital structure in order to promote the growth of their corporate organizations. Also, reasonable use of long-term debts, as needed to finance expansion of manufacturing firms infrastructures and other
investments, recommended in order to avoid the financial risk of default and possible
bankruptcy.
The findings of the study revealed that long term debt (LTDR), short term debt (STDR),
and total debts (TDR) are positively related to financial performance (ROE) of
manufacturing firms. Furthermore, long term debt ratio and total debt ratio (that is
leverage) are significantly related to manufacturing firms’ financial performance (ROE).
In addition, short term debt ratio and total-debt equity ratio have no significant influence on manufacturing firms’ financial performance. While, short debt has positive influence on manufacturing firms’ financial performance, total debt-equity ratio has a negative influence on performance. Hence, long term debt rather than short term debt and debt equity ratio is the significant determinant of financial performance (ROE) of
manufacturing firms in Nigeria. The study recommends that the managers of the nation’s manufacturing firms should strive to boost return to equity owners by increasing theirs use of debts, particularly long term debts in their capital structure in order to promote the growth of their corporate organizations. Also, reasonable use of long-term debts, as needed to finance expansion of manufacturing firms infrastructures and other
investments, recommended in order to avoid the financial risk of default and possible
bankruptcy.
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