Effect of Capital Structure on Performance of Listed Consumer Goods Companies in Nigeria

Abstract

Managers of corporate entities are mostly in a confrontation with the problem of; what combination of capitalstructure (equity and debt) will maximizereturns and value of their firms? The study,therefore, aims at assessing the effect of capital structure on the financial performance of listed Consumer goodscompanies in Nigerian. All consumer goods companies quoted on the NigerianStock Exchange are considered the population for this study while seven (7) out of these firms whose accounting year-ends31 December are considered as the sample.Secondary data was utilized from theannual financial reports of the sampled firms from the year 2008 – 2013, which was obtained from African Financial websiteand official website of Nigerian Stock Exchange. The study used ex-post factoresearch design to examine the relationship between independent and dependentvariables while controlling for other variables. Descriptive statistics, correlation, and hierarchical multipleregression analyzes were carried out to test the hypothesesdeveloped in the study. The study found that there is a positive and significant relationship between firm’s capitalstructure and corporate financial performance. The study specifically foundthat short-term debt (STD) has no significance positive effect on return onequity (ROE) while Long-term debt (LTD) has positive relation and significantlyeffect on ROE. The study recommends that firms should consider the mixture ofequity and debt since they are major determinants of corporate performance.Authorities concerned should create an enabling business environment forcompanies (especially those with low capital) so as to have access to long-term debt to finance their operations andimprove performance in the short-run, instead of using high short-term debts,to cushions for financing and profitability problems.Keywords:Capital Structure, Firm Performance, Short-term debt, Long-term debt,Return on Equity