Capital Structure and Performance Evaluation in Manufacturing Sector: A Case Study of Selected Quoted Companies in the Nigeria Stock Exchange (NSE)

Abstract

This study examines the relationship between capital structure and performance value of capitalized manufacturing firms in Nigeria. The annual financial statement of seven (7) manufacturing firms listed in the Nigeria Stock Exchange, covering a period of ten (10) years i.e. 2001-2010 was used in this study. Multiple regression analysis was used to determine the relationship between performance indicators such as return on equity (ROE), return on asset (ROA) and profit margin (PM) as well as the explanatory variables which consist of   Total Asset (TA), Corporate Tax (CT), Annual interest rate (AIR) and Debt-Equity Ratio (TDER) which served as capital structure. Three models were developed for the purpose of determining the relationship which exist between capital structure (TDER) and the various performance indicators (ROE, ROA & PM).           The result showed a negative significant relationship in model one and insignificant in models two and three. The work concludes that there is a negative significant relationship between capital structure and Return on Equity (ROE) and insignificant relationship between capital structure and Return on Asset (ROA) and Profit Margin (PM). The study concludes that management of firms should exercise caution while choosing the amount of debt to use in their capital structure as it affects firms’ performance negatively.