Corporate entities all over the world are faced with the problem of determining appropriate finance that will boost the value of the entity and maximize the wealth of shareholders. However, for overall wealth of shareholders to be met and consistent increase in value of Banks to be achievable, capital either debt in form of customers deposit or equity capital raised from investors is inevitable. This study therefore examined the effect of capital structure on the performance of some selected banks in Nigeria. The objectives were to examine the relationship that exists between capital structure and financial performance and to investigate the effect of capital structure on the financial performance of quoted deposit money banks in Nigeria. To achieve these, a cross sectional time series secondary data covering the period of seven years (2012-2018) was extracted from the audited financial statement of ten (10) banks listed on the floor of stock exchange. The descriptive statistics, Pearson moment correlation and multiple linear regressions were used. The correlation results showed that capital structure is negatively correlated with financial performance (ROA and ROE). Result from panel regression revealed that debt to equity though significant, impacted negatively on return on assets and return on equity ( = −0.1266, < .01; = −5.3571, > .01) , asset tangibility significantly impacted return on asset but 2 insignificantly impacted return on shareholder's equity ( = −0.0235, > .05; = −0.3527, > .10) and also Age have a significant impact on return on asset and insignificant effect on return on equity ( = −0.0141, < .01; = −0.1497, > .10). This study therefore concluded that capital structure have a negative effect on the financial performance of deposit money banks in Nigeria and recommended that appropriate proportion of capital should be tailored towards viable investment opportunities for maximum return of shareholders wealth and increase in value of the firm. More so, while finance manager is alert to the movement in the stock market, banks should take precautionary measures for mitigating credit risk associated with lending and borrowing.
Capital structure decisions remain the fundamental financing decision in the corporate world. The decision affects both financial performance of firms and returns accrued to providers of capital. Therefore, in order to determine the blend of capitals that maximizes firm’s performance, this study investigates the impact of capital structure on firm’s performance in the food and beverages manufacturing industries in Nigeria. We adopted an ex-post factor research design which involves the use of cross sectional time series data extracted from the audited annual accounts of ten food and beverages industries quoted in the Nigeria stock exchange covering the period of six years (2012 – 2017). To measure the strength of association between the variables, Pearson moment correlation analysis was used and the result revealed that size of firm and equity are positively correlated with financial performance. However, from the panel regression results, we found out that Debt finance significantly impacted the performance of the industries (ROCE, ROA, and EPS) negatively. While the impact Firms size have on the selected food and beverages industries was relatively low, Equity finance contributed hugely and positively to the performance of the firm. This study therefore concludes that investment financed by equity increases the value of firm more than when it is financed through debt. Based on the findings, the study, therefore recommends that firms should consider taking debts with lower cost to avoid erosion of shareholders’ value and the risk of bankruptcy. Furthermore, due to manipulative tendencies in reporting profits, financial performance measurement should be based on share prices rather than accounting profits.
scite is a Brooklyn-based organization that helps researchers better discover and understand research articles through Smart Citations–citations that display the context of the citation and describe whether the article provides supporting or contrasting evidence. scite is used by students and researchers from around the world and is funded in part by the National Science Foundation and the National Institute on Drug Abuse of the National Institutes of Health.
hi@scite.ai
10624 S. Eastern Ave., Ste. A-614
Henderson, NV 89052, USA
Copyright © 2024 scite LLC. All rights reserved.
Made with 💙 for researchers
Part of the Research Solutions Family.