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Determinants of Capital Structure and Firm’s Performance in Nigeria (1989-2014): An Empirical Investigation Approach.

Determinants of Capital Structure and Firm’s Performance in Nigeria (1989-2014): An Empirical Investigation Approach.

DATE PUBLISHED
Published December 22, 2015
SECTION
Articles

Author Details

Abstract

The study evaluates the determinants of capital structure and firm’s performance in Nigeria (1989-2013). Secondary data were used and collected from the Annual Reports Accounts of PZ Nigeria PLC. Hypotheses were formulated and tested using time series econometrics. The test for stationary proves that the variables used for the analysis are integrated in the order, which implies that the variables do not have unit roots. The coefficient of determination indicates about 58% of the variations in capital structure is explained by changes in firm’s performance variables (ROA and ROE). There is also positive long-run equilibrium relationship between capital structure and firm’s performance in Nigeria. The error correction estimates gave evidence that the coefficient is statistically significant and the result also confirmed that about 76% short-run adjustment speed from long-run disequilibrium. There is causality between capital structure and firm’s performance of PZ PLC in Nigeria. The study thus recommends that, firms should use an optimal capital structure and that listed firms in Nigeria should employ an appropriate capital structure model that meets the corporate long term survival and growth. There should be an effective management of long-term debts and other working capital items in firm’s balance sheet. Quoted firms in Nigeria should reduce the debt levels in their capital structures so as to enhancen positive performance to the interest of shareholders’ and the economy; and government should create an enabling business friendly environment so that business can thrive effectively and will also increase firm’s performance level.

Keywords

Determinants, capital structure, firm’s, performance, Nigeria.

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