Author

  • Gideon Tayo AKINLEYE

    • Faculty of Management Sciences, Ekiti State University, Ado Ekiti, Nigeria
    • Nigeria

  • LovethOluwatosin AKOMOLAFE

    • Faculty of Management Sciences, Ekiti State University, Ado Ekiti, Nigeria
    • Nigeria

Abstract

This study examined capital structure and profitability of manufacturing firms listed on the Nigerian stock exchange. Specifically the study analyzed the impact of disaggregated variables of debt finance (Short term debt and long term debt) and equity finance (share capital and share premium) on profit after tax. Secondary data were gathered from annual reports of sampled firms over a period of ten years (2008- 2017) and were analyzed using panel data estimators such as pooled OLS estimator, fixed effect estimator, random effect estimator, Hausman test, and Pesaran test of cross sectional dependence. The findings revealed that short term debt has insignificant positive effect on profit after tax of manufacturing firms showing in specific term a coefficient estimate of 0.114985 (p=0.5890> 0.05) long term debt exerts significant positive impact on profit after tax, with specific coefficient estimate of 0.578290 (p=0.0001< 0.05) share capital exerts significant positive effect on profit after tax, with coefficient estimate of 0.784525 (p=0.0000< 0.05) share premium exerts insignificant negative effect on profit after tax, with coefficient estimate of -0.000395 (p= 0.9924> 0.05). The study concluded that short term debt has declining effect on the profitability of manufacturing firms in the country, while the long term variable of debt finance of firms spurs the rate of profitability. In clear term disaggregated debt finance subsets exerts significant effect on the profitability of firms sampled in the study. On the other hand equity finance disaggregated into share capital and share premiums reflect that share capital has significant positive effect on profit after tax, while share premium has insignificant negative effect on profit after tax.

Keywords

References

  • Ahmad, Z., Abdullah, N. M. H. & Roslan, S. (2012). Capital structure effect on firms’ performance focusing on consumers and industrial sectors on Malaysian firms. International Review of Business Research Papers, 8(5), 137-155.
  • Abeywardhana, D. K. Y. (2015). Capital structure and profitability: an empirical analysis of SMESs in the UK. Journal of Emerging Issues in Economics, Finance and Banking (JEIEFB), 4(2), 1661-1675.
  • Abor, J. (2005). The Effect of Capital Structure on Profitability: Empirical Analysis of Listed Firms in Ghana. Journal of Risk Finance, 6(5), 438-45.
  • Abor, J. (2008). Determinants of the capital structure of Ghanaian firms. African Economic Research Consortium (AERC) Research Paper, 176.
  • Adedoyin, I. L. (2014). Capital structure and the value of firm: evidence from the Nigeria banking industry. Journal of Accounting and Management, 4(1), 31-41.
  • Adesina, O. & Mwidobie, M. (2015). Capital structure and financial performance in Nigeria. International Journal of Business and Social Research, 5(2), 188-195.
  • Aftab, M., Ehsan, R., Naseer, S. & Awan, T. (2012). The effect of corporate strategy and capital structure on performance of banking sector of Pakistan. Global Journal of Management and Business Research, 12(17), 67-79.
  • Agha, H. (2015). Determinants of capital structure of cement sector in Pakistan. European Scientific Journal, 11(13), 353-367.
  • Akinlo, O. (2011). Determinants of Capital Structure: Evidence from Nigeria Panel Data. African Economic and Business Review, 9(1), 1109-5609.
  • Akinsurile, O. (2008). Financial Management. Lagos: Eltoda Ventures Ltd. 6th Edition.
  • Akinyomi, O. J. (2013). Effect of Capital Structure on Firms Performance: Evidence from Nigerian Manufacturing Company. International Journal of Innovative Research and Studies, 2(9), 225-299.
  • Akinyomi, O. J. & Olagunju, A. (2013). Determinants of capital structure in Nigeria. Journal of Academic Research in Accounting, Finance and Management Sciences, 2(3), 25-39.
  • Aliu, N. O. (2012). Effect of Capital Structure on the Performance of Quoted firms. International Journal of Innovation and Applied Studies, 3(4), 999-1005.
  • Aremu, M. Y., Ekpo, I. C. & Mustapha, A. M. (2013). Determinants of capital structure in Nigerian banking sector. International Journal of Academic Research in Economics and Management Sciences, 2(4), 27-43.
  • Arnold, J. (2008). Do Corporate Taxes Reduce Productivity and Investment at the Firm Level? Cross Country Evidence from Amadeus Dataset. Working Papers 2008 - 19, CEPII Research center.
  • Babalola, Y. A. (2014). Triangulation analysis of capital structure and firms’ performance in Nigeria. East Ukrainian National University [(. Dahl] 91034
  • Babalola, Y. Y. (2013). The effect of firm size on firms’ profitability in Nigeria. Journal of Economics and Sustainable Development, 14(5), 90-95.
  • Chandrasekharan, C. V. (2012). Determinant of capital structure in the Nigerian listed firms. International Journal of Advanced Research in Management and Social Sciences, 1(2), 50-63.
  • Chechet, I. L. & Olayiwola, A. B. (2014). Capital Structure and Profitability of Nigerian Quoted Firms: The Agency Cost Theory Perspective. American International Journal of Social Science, 3(1), 139-158.
  • Cortez, M. A. & Susanto, S. (2012). Determinants of corporate capital structure: evidence from Japanese manufacturing companies. Journal of International Business Research, 11(3), 121-134.
  • Foyeke, O. I., Olusola, F. S. & Aderemi, A. K. (2016). Financial Structure and the Profitability of Manufacturing Companies in Nigeria. Journal of Accounting, Finance and Auditing Studies, 2(3), 56-63.
  • Gajurel, P. D. (2005). Capital structure management in Nepalese enterprises. Master’s Degree Thesis, Kathmandu: Faculty of Management, Tribhuvan University.
  • Gatsi, J. G. & Akoto, R. K. (2010). Capital structure and profitability in Ghanaian banks.
  • Kajananthan, R. & Nimalthasan, P. (2012). Capital structure and its impact on firm performance: a study on Sri Lankan listed manufacturing companies, 1(2), 37-44.
  • Kakanda, M. M., Bello, A. B. & Abba, M. (2016). Effect of Capital Structure on Performance of Listed Consumer Goods Companies in Nigeria. Research Journal of Finance and Accounting, 7(8), 211-219.
  • Kane, K. A., Parrat, J. R. & Williams, F. M. (1984). An investigation into the characteristics of reperfusion-induced arrhythmias in the anaesthetized rat and their susceptibility to ant arrhythmic agents. Br. J. Pharmacol, 82, 349-357.
  • Lawal, A. I. (2014). Capital structure and the value of the firm: Evidence from the Nigeria banking industry. Journal of Accounting and Management Jam, 4(1), 23-44.
  • Muritala, T. A. (2011). An Empirical Analysis of Capital Structure on Firm's Performance in Nigeria. International Journal of Advances in Management and Economics, 1(5), 116-124.
  • Myers, S. C. & Majluf, N. S. (1984). Corporate financing and investment decisions when firms have information that, investors do not have. The Journal of Financial Economics, 13, 187-221.
  • Myers, S. C. (2005). Determinants of Corporate Borrowing. Journal of Financial Economics, 5(4), 147-175.
  • Ownership Structure, Journal of Financial Economics, 3, 305–360.
  • Ogebe, J. O., Ogebe, P. O. & Alewi, K. (2013). The Impact of Capital Structure on Firms’ Performance in Nigeria. http://papers.ssrn.com/sol3/papers.cfm
  • Osuji, C. C. & Odita, A. (2012). Impact of capital structure on the financial performance of Nigerian firms. Arabian Journal of Business and Management Review, 1(12), 43-51.
  • Putrawan, P. W., Sinarwati, N. K. & danPurnamawati, I. G. A. (2015). Pengaruh Investasi Aktiva Tetap, Likuiditas, Solvabilitas, Dan Modal KerjaTerhadapProfitabilitas Perusahaan Otomotif Dan Komponen Yang Terdaftar Di Bursa Efek Indonesia Tahun 2010-2013. E-Journal S1 Ak Universitas Pendidikan Ganesha Jurusan Akuntansi Program S1, 3(1).
  • Ross, S., Westerfield, R. & Jaffe, J. (2008). Corporate Finance. 8th Edition, New York: McGraw-Hill Irwin.
  • Saad, N. M. (2010). Corporate governance compliance and the effects of capital structure. International Journal of Economics and Finance, 8, 217-248.
  • Samuel, D. K. (2016). Effects of Capital Structure on Financial Performance of Commercial Banks In Kenya (The School Of Business And Economics South Eastern Kenya University).
  • Siddik, N. A., Kabiraj, S. & Joghee, S. (2017). Impacts of Capital Structure on Performance of Banks in a Developing Economy: Evidence from Bangladesh. International Journal of Financial Studies, 5, 13.
  • Sunday, I. (2015). Another look at Capital Structure and Corporate Performance in Emerging Markets: The Case of Nigeria. Asian Journal of Business Management, 7(1), 1-12.
  • Tailab, M. M. K. (2014). The Effect of Capital Structure on Profitability of Energy American Firms. International Journal of Business and Management Invention, 3(12), 54-61.
  • Uremadu, S. O. & Efobi, U. R. (2012). The Impact of Capital Structure and Liquidity on Performance: A study on Sri Lankan listed manufacturing companies. Merit Research International Journal of Innovation and Applied Studies, 3(4), 999-1005.

Downloads

No downloads have been recorded for this article yet. Figures appear here once readers begin downloading the full text.

How to Cite

AKINLEYE, G. T., & AKOMOLAFE, L. (2019). Capital Structure and Profitability of Manufacturing Firms listed on the Nigerian Stock Exchange. Information Management and Business Review, 11(3(I), 27-34. https://doi.org/10.22610/imbr.v11i3(I).2944

Share this article

License

Copyright (c) 2019 Gideon Tayo AKINLEYE, LovethOluwatosin AKOMOLAFE (Author)

Creative Commons License

This work is licensed under a Creative Commons Attribution 4.0 International License.

Author (s) should affirm that the material has not been published previously. It has not been submitted and it is not under consideration by any other journal. At the same time author (s) need to execute a publication permission agreement to assume the responsibility of the submitted content and any omissions and errors therein. After submission of revised paper in the light of suggestions of the reviewers, the editorial team  edits and formats manuscripts to bring uniformity and standardization in published material.

This work will be licensed under Creative Commons Attribution 4.0 International (CC BY 4.0) and under condition of the license, users are free to read, copy, remix, transform, redistribute, download, print, search or link to the full texts of articles and even build upon their work as long as they credit the author for the original work. Moreover, as per journal policy author (s) hold and retain copyrights without any restrictions.

Keywords

Section

Research Paper

Published in

Vol. 11 No. 3(I) (2019) Climate Risk, Process Reengineering & Consumer Behaviour View issue contents

Published

2019-10-31

Submissions

Have research to publish? Information Management and Business Review welcomes submissions.

Make a Submission