Impact of Capital Sturcture on The Coprate Performance of Manufacturing Firms in Nigerian: A Study of Selected Firms
Abstract
This study is an appraisal of the impact of capital structure on the performance of
manufacturing firms in Nigeria. The work attempts to
examine the contributions of
capital structure on corporate performance. It is prompted by the observation that
the capital structure of most companies in Nigeria is sub
-
optimal and this accounts,
in part, for the poor performance of many of the corporati
ons, which has led some
to liquidation. Data were collected through primary and secondary sources. The
methodology involved the construction of multivariate models, which were analyzed
using multiple regression and multiple discriminant analyses. The formu
lated
hypotheses were tested. The results of the models analyzed show that, leverage
exerts a significant impact on corporate profitability. We also found that there is a
significant tax shield provided when firms undertake leverage. Moreso, there exists a
significant relationship between a firm’s corporate performance and its capital
structure, and the summary effect of the change in the impact of leverage on
profitability with or without corporate taxation, is significant. Factors militating
against the e
ffective use of capital structure to improve corporate performance
include the non
-
financial characteristics of the firm, the industry
-
specific shocks, and
the institutional environment in which the firm operates. It is recommended that
firms should adopt
appropriate Debt/Equity ratios depending on their risk
peculiarities. Efforts should be made to improve the management of capital structure
variables by manufacturing corporations in Nigeria in order to improve their
performance. The firms, as a matter of
prudence, should establish regulations that
encourage them to increase their capital base by adopting appropriate capital
structures that will help improve their performance. The significance of this work lies
in the finding that firms with better capital
structures perform better. Its major
contribution to knowledge is that we have been able to develop a capital structure
Prediction model useful in the determination of Corporate Performance amongst
manufacturing firms in Nigeria. The study has also shown a
remarkable departure
from other studies on Capital Structure.