Effect of Capital Structure on Financial Performance of Listed Manufacturing Firms in Nigeria

Abstract

There exists divergence of opinion in literature on the relationship between capital structure and firm’s financial performance. This mix of opinions makes the direction of the relationship between debt holders and equity holders to be controversial. Therefore, this study investigated the impact of capital structure on financial performance of listed manufacturing firms in Nigeria. The study formulated three explanatory variables and one dependent variable return of assets (ROA) and used generalized least square multiple regression to analyse the secondary data extracted from the annual reports and accounts of the eight (8) sampled firms for the period 2010 to 2019. The study found that total debt to capital ratio and ratio of the long-term debt have significant impact on the financial performance of listed manufacturing firms in Nigeria. The study also found that total debt to total equity has no significant effect on the financial performance of the firms. The study concluded that total debt to total equity is not one of the factors that influence the financial performance of listed manufacturing firms in Nigeria. The study therefore recommend that the management of listed manufacturing firms should reduce the level of total debt to total assets and long-term debt to total assets in their capital structure components, because they affect their financial performance negatively.