Effect of Capital Structure on Firms Performance in Nigeria

Ayange, Asen; Emmanuel, Nwude Chuke; Rosemary, Idamoyibo Hwerien; Ndudi, Ufodiama Clifford; Samuel, Udo Emmanuel

doi:10.13189/ujaf.2021.090102

Cited by 9 publications

(10 citation statements)

References 13 publications

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“…This dilemma attracted the interests of many scholars for a long time. In this perspective, many studies have been focused on the impact of capital structure on corporate performance (Ayange et al , 2021; Asaolu, 2021). It is argued that firm value and thus shareholders’ wealth are increased as a result of choosing the optimal capital structure (Weston and Brigham, 1992).…”

Section: Introductionmentioning

confidence: 99%

The heterogeneous effect of leverage on firm performance: a quantile regression analysis

Ghardallou

2023

IMEFM

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Purpose The purpose of this study is to look at the effect of financial leverage on the performance of Saudi listed companies. It particularly proposes to examine the heterogeneity of this relationship depending on firm profitability and firm size. Design/methodology/approach The paper uses a sample of 120 nonfinancial companies listed on the Tadawul stock exchange during the period 2017–2020. Data is obtained from the companies’ financial reports. This study uses the system GMM and the quantile regression. The first methodology examines the effect of leverage decisions on firm performance, whereas the second one tests the heterogeneity of this relationship. Findings GMM results demonstrate the adverse effect of leverage on firm performance in terms of return on assets, return on equities and Tobin’s Q. Besides, quantile regression results show that this relationship is heterogeneous. Particularly, leverage seems to have a greater adverse effect on the performance of high-profitable firms than low-profitable firms. Moreover, leverage has a negative effect in larger firms, whereas the influence becomes negative in smaller ones. Originality/value This study is unique in that it approaches the capital structure issue from a different perspective, where the leverage decision is distinctly considered at various levels of firm profitability and firm size. In addition, the majority of the existing studies is carried out in developed countries. However, the results might not apply to emerging countries given the specificity of their institutional structure. In this regard, Saudi Arabia has a distinctive business climate characterized by the absence of corporate tax and an illiquid bond market.

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Section: Introductionmentioning

confidence: 99%

The heterogeneous effect of leverage on firm performance: a quantile regression analysis

Ghardallou

2023

IMEFM

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“…This means that owing to a decrease of financing from borrowed funds, corporate debt load will reduce. Apart from the papers mentioned above, the paper by Asen et al [25] also supports this interpretation, where the authors use as an example Nigerian companies from various economic sectors in the period of 1999 to 2018 and show that profitability indicators for such companies have negative dependence with a long-term and short-term debt.…”

Section: Traditional Determinants Of Debt Loadmentioning

confidence: 87%

The Determinants of Debt Load for Companies in Emerging Markets

Klestov¹,

Jindřichovská²

2021

КФ

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Corporate capital structure is one of the key elements of long-term development, which determines the company value.Consequently, defining the factors that influence the debt load level of a company and, hence, its capital structure is also of great importance. In this paper we have collected a sample of data of 753 Russian companies and 292 Brazilian companies for 2020 to evaluate the influence of various factors on their debt-load level. The data was downloaded from Bloomberg database and the basis of the analysis focuses on evaluation of conventional academic theories on capital structure, and a regression analysis based on variables extracted from a set of original hypotheses. Among our results, our analysis illustrates that individual sets of determinants differ significantly in explanatory power, and operate unequally when contrasting Russian companies and Brazilian ones. Additionally, it was established that when companies define their debt load, they do not limit themselves to a single theory of capital structure. We conclude, inter alia, that it is impossible to identify with confidence which of the examined theories companies are most likely to follow in their actions, because observed interrelations between relevant variables and debt load have indications of various academic theories.

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“…Prior studies on cash flow focus on the industrial and non-industrial quoted firms in emerging and industrialized economies. The findings of this study revealed diverse results; [6] in Kenya [7] in Ghana [58] in Morocco and [59] in Nigeria reported a positive nexus. [8] in Sri Lanka telecommunication sector reported a diverse result among quoted firms on cash position and profitability.…”

Section: Introductionmentioning

confidence: 88%

Cash Flow Management and Industrial Firms Performance in Nigeria

Rosemary¹,

Prince²,

Jack³

et al. 2021

ujaf

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The focal point of this research was to establish the liquidity-viability link in quoted non-financial firms in Nigeria. Liquidity improves the profitability of firms but not its solvency. The solvency and performance of a firm exclusively anchor on the firm's capacity to realize the "twin conflicting" targets of liquidity sufficiency and stable growth through a diversified and stable asset-liability mix. The firm's inability to strike an equilibrium balance among meeting financial obligations, sufficient liquidity and profitability has led to insolvency of most firms in Nigeria. Most empirical studies in Nigeria ignore effect of cash flow management on the non-financial sector to focus on the financial sector. Use the regression model predominantly and also ignore the widely accepted econometric process of a pre and post diagnostic test. This study focuses on 13 quoted non-financial sectors in Nigeria firms from 1999-2020. The preliminary test was conducted to determine the best fit model. Liquidity proxy by the current ratio significantly influences ROE and non-significantly on ROE when proxy by the cash flow ratio. Findings also divulged a bidirectional nexus between current ratio, cash flow ratio, and ROE and a non-causal nexus with other variables. Policy recommendations are further discussed.

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Effect of Capital Structure on Firms Performance in Nigeria

Cited by 9 publications

References 13 publications

The heterogeneous effect of leverage on firm performance: a quantile regression analysis

The heterogeneous effect of leverage on firm performance: a quantile regression analysis

The Determinants of Debt Load for Companies in Emerging Markets

Cash Flow Management and Industrial Firms Performance in Nigeria

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