Dynamic Relationship Between Capital Structure and Quoted Manufacturing Firms’ Performance in Nigeria

Oyedeji Rasheed Olarewaju

doi:doi:10.11648/j.ijefm.20190703.11

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Dynamic Relationship Between Capital Structure and Quoted Manufacturing Firms’ Performance in Nigeria

Oyedeji Rasheed Olarewaju

Published in International Journal of Economics, Finance and Management Sciences (Volume 7, Issue 3)

Received: 15 May 2019 Accepted: 18 June 2019 Published: 1 July 2019

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Abstract

For so long, and most recently, relationship between capital structure and manufacturing firm’s performance has been an issue in financial world. Financial analysts are controversial in advising the investors on the best capital structure to employ while undertaking investment decisions. This paper investigates dynamic relationship between capital structure and quoted manufacturing firms’ performance in Nigeria from 1990-2016. Using panel unit root test to verify the stationarity property of the data, Pedroni conitegration tests and Panel Vector Error Correction Method (PVECM) are employed to examine the equilibrium among the variables as well as analysing the data. There is evidence of long run relationship between capital structure and firms’ performance in Nigeria as revealed by Cointegration test results. Results from PVECM show that, throughout the period i.e. both in the long run and short run, except itself, none of the variables’ shocks in the system significantly accounts for variations in the returns on asset (ROA), given variance error decomposition’s statistics. Also, both in the short run and long run, innovations from only equity (EQU) explains, on average, 1.76% variations to profit margin. Arising from these findings, the study could not find dynamic relationship between capital structure and firms’ performance. The study, therefore, recommends that manufacturing firms should be pragmatic when choosing capital structure outlays to enhance performance in their activities.

Published in	International Journal of Economics, Finance and Management Sciences (Volume 7, Issue 3)
DOI	10.11648/j.ijefm.20190703.11
Page(s)	82-87
Creative Commons	This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited.
Copyright	Copyright © The Author(s), 2019. Published by Science Publishing Group

Keywords

Dynamic, Capital, Manufacturing Firm, Performance

References

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[2]	Akinsulire, O. (2014). Financial Management, 6th Edition, Ikeja, Ceemol Nig. Ltd.
[3]	Kinde, R. A. (2013). Impact of Firm Level Factors on Capital Structure: Evidence from Ethiopian Insurance Companies. Global Journal of management and Business Research 13 (4), 1-9.
[4]	Siddiqui, M. A. & Shoab, A, (2011). Measuring Performance through Capital Structure: Evidence from Banking Sector of Pakistan. African Journal of Business Management 5 (5), 1871-1879.
[5]	Tian, G. G. & Zeitun, R. (2007). Capital Structure and Corporate Performance: Evidence from Jordan. Australian Accounting Business and Finance Journal, 1 (4): 40-61.
[6]	De Angelo, H. & Masuli, R. W. (1980). Optimal Capital Structure under Corporate and Personal Taxation. Journal of Financial Economics, 8: 3-29.
[7]	Getzmann, A., Lang, S. & Spremann, K. (2010). Determinants of the Target Capital Structure and Adjustment Speed-evidence from Asian Capital Markets. European Journal of Financial Management, 1: 1-30.
[8]	Mishra, C. S. (2011) Determinants of Capital Structure – A Study of Manufacturing Sector PSUs in India. International Conference on Financial Management and Economics, 11, 247-252.
[9]	Ajeigbe, K. B., Fasesin, O. O. & Ajeigbe, O. M. (2013). Nigeria Ailing Industries and the Capital Structure Theory: A need for Concern. Australian Journal of Business and Management Research, 3 (8): 31-40.
[10]	Chechet I. L, Garba, S. L & Odudu, A. S (2013). Determinants of capital Structure in the Nigerian Chemical and Paints Sector. International Journal of Humanities and Social Science, 3 (15), 247-263.
[11]	Hasan, B., Ahsan, A. F. M. M., Rahaman, M. A., Alam, N. (2014). Influence of Capital Structure on Firm Performance: Evidence from Bangladesh. International Journal of Business and Management, 9 (5), 184-194.
[12]	Javed, T. Younas, W. & Imiran, M. (2014). Impact of Capital Structure on Firm Performance: Evidence from Pakistani Firms. International Journal of Academic Research in Economics and Management Sciences, 3 (5), 28-52.
[13]	Hossain, A. T. & Nguyen, D. X. (2016). Capital Structure, Firm Performance and the Recent Financial Crisis. Journal of Accounting and Finance, 16 (1), 76-89.
[14]	Nenu, E. A., Vintila, G. & Gherghina, S. V. (2018). The Impact of Capital Structure on Risk and Firm Performance: Empirical Evidence for the Bucharest Stock Exchange Listed Companies. International Journal of Financial Studies, 6 (41), 1-29.
[15]	Vatavu, S. (2015). The Impact of Capital Structure on Financial Performance in Romanian Listed Companies. Procedia Economics and Finance 32, 1314 – 1322.
[16]	Huang, G. & Song, F. M. (2006), The Determinants of Capital Structure: Evidence from China, China Economic Review, 17 (1), 14-36.

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APA Style

Oyedeji Rasheed Olarewaju. (2019). Dynamic Relationship Between Capital Structure and Quoted Manufacturing Firms’ Performance in Nigeria. International Journal of Economics, Finance and Management Sciences, 7(3), 82-87. https://doi.org/10.11648/j.ijefm.20190703.11

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ACS Style

Oyedeji Rasheed Olarewaju. Dynamic Relationship Between Capital Structure and Quoted Manufacturing Firms’ Performance in Nigeria. Int. J. Econ. Finance Manag. Sci. 2019, 7(3), 82-87. doi: 10.11648/j.ijefm.20190703.11

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AMA Style

Oyedeji Rasheed Olarewaju. Dynamic Relationship Between Capital Structure and Quoted Manufacturing Firms’ Performance in Nigeria. Int J Econ Finance Manag Sci. 2019;7(3):82-87. doi: 10.11648/j.ijefm.20190703.11

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@article{10.11648/j.ijefm.20190703.11,
  author = {Oyedeji Rasheed Olarewaju},
  title = {Dynamic Relationship Between Capital Structure and Quoted Manufacturing Firms’ Performance in Nigeria},
  journal = {International Journal of Economics, Finance and Management Sciences},
  volume = {7},
  number = {3},
  pages = {82-87},
  doi = {10.11648/j.ijefm.20190703.11},
  url = {https://doi.org/10.11648/j.ijefm.20190703.11},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.ijefm.20190703.11},
  abstract = {For so long, and most recently, relationship between capital structure and manufacturing firm’s performance has been an issue in financial world. Financial analysts are controversial in advising the investors on the best capital structure to employ while undertaking investment decisions. This paper investigates dynamic relationship between capital structure and quoted manufacturing firms’ performance in Nigeria from 1990-2016. Using panel unit root test to verify the stationarity property of the data, Pedroni conitegration tests and Panel Vector Error Correction Method (PVECM) are employed to examine the equilibrium among the variables as well as analysing the data. There is evidence of long run relationship between capital structure and firms’ performance in Nigeria as revealed by Cointegration test results. Results from PVECM show that, throughout the period i.e. both in the long run and short run, except itself, none of the variables’ shocks in the system significantly accounts for variations in the returns on asset (ROA), given variance error decomposition’s statistics. Also, both in the short run and long run, innovations from only equity (EQU) explains, on average, 1.76% variations to profit margin. Arising from these findings, the study could not find dynamic relationship between capital structure and firms’ performance. The study, therefore, recommends that manufacturing firms should be pragmatic when choosing capital structure outlays to enhance performance in their activities.},
 year = {2019}
}

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TY  - JOUR
T1  - Dynamic Relationship Between Capital Structure and Quoted Manufacturing Firms’ Performance in Nigeria
AU  - Oyedeji Rasheed Olarewaju
Y1  - 2019/07/01
PY  - 2019
N1  - https://doi.org/10.11648/j.ijefm.20190703.11
DO  - 10.11648/j.ijefm.20190703.11
T2  - International Journal of Economics, Finance and Management Sciences
JF  - International Journal of Economics, Finance and Management Sciences
JO  - International Journal of Economics, Finance and Management Sciences
SP  - 82
EP  - 87
PB  - Science Publishing Group
SN  - 2326-9561
UR  - https://doi.org/10.11648/j.ijefm.20190703.11
AB  - For so long, and most recently, relationship between capital structure and manufacturing firm’s performance has been an issue in financial world. Financial analysts are controversial in advising the investors on the best capital structure to employ while undertaking investment decisions. This paper investigates dynamic relationship between capital structure and quoted manufacturing firms’ performance in Nigeria from 1990-2016. Using panel unit root test to verify the stationarity property of the data, Pedroni conitegration tests and Panel Vector Error Correction Method (PVECM) are employed to examine the equilibrium among the variables as well as analysing the data. There is evidence of long run relationship between capital structure and firms’ performance in Nigeria as revealed by Cointegration test results. Results from PVECM show that, throughout the period i.e. both in the long run and short run, except itself, none of the variables’ shocks in the system significantly accounts for variations in the returns on asset (ROA), given variance error decomposition’s statistics. Also, both in the short run and long run, innovations from only equity (EQU) explains, on average, 1.76% variations to profit margin. Arising from these findings, the study could not find dynamic relationship between capital structure and firms’ performance. The study, therefore, recommends that manufacturing firms should be pragmatic when choosing capital structure outlays to enhance performance in their activities.
VL  - 7
IS  - 3
ER  -

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Author Information

Oyedeji Rasheed Olarewaju

Department of Management and Accounting, Faculty of Management Sciences, Ladoke Akintola University of Technology, Ogbomoso, Oyo State, Nigeria

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APA Style

Oyedeji Rasheed Olarewaju. (2019). Dynamic Relationship Between Capital Structure and Quoted Manufacturing Firms’ Performance in Nigeria. International Journal of Economics, Finance and Management Sciences, 7(3), 82-87. https://doi.org/10.11648/j.ijefm.20190703.11

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ACS Style

Oyedeji Rasheed Olarewaju. Dynamic Relationship Between Capital Structure and Quoted Manufacturing Firms’ Performance in Nigeria. Int. J. Econ. Finance Manag. Sci. 2019, 7(3), 82-87. doi: 10.11648/j.ijefm.20190703.11

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AMA Style

Oyedeji Rasheed Olarewaju. Dynamic Relationship Between Capital Structure and Quoted Manufacturing Firms’ Performance in Nigeria. Int J Econ Finance Manag Sci. 2019;7(3):82-87. doi: 10.11648/j.ijefm.20190703.11

Copy | Download

@article{10.11648/j.ijefm.20190703.11,
  author = {Oyedeji Rasheed Olarewaju},
  title = {Dynamic Relationship Between Capital Structure and Quoted Manufacturing Firms’ Performance in Nigeria},
  journal = {International Journal of Economics, Finance and Management Sciences},
  volume = {7},
  number = {3},
  pages = {82-87},
  doi = {10.11648/j.ijefm.20190703.11},
  url = {https://doi.org/10.11648/j.ijefm.20190703.11},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.ijefm.20190703.11},
  abstract = {For so long, and most recently, relationship between capital structure and manufacturing firm’s performance has been an issue in financial world. Financial analysts are controversial in advising the investors on the best capital structure to employ while undertaking investment decisions. This paper investigates dynamic relationship between capital structure and quoted manufacturing firms’ performance in Nigeria from 1990-2016. Using panel unit root test to verify the stationarity property of the data, Pedroni conitegration tests and Panel Vector Error Correction Method (PVECM) are employed to examine the equilibrium among the variables as well as analysing the data. There is evidence of long run relationship between capital structure and firms’ performance in Nigeria as revealed by Cointegration test results. Results from PVECM show that, throughout the period i.e. both in the long run and short run, except itself, none of the variables’ shocks in the system significantly accounts for variations in the returns on asset (ROA), given variance error decomposition’s statistics. Also, both in the short run and long run, innovations from only equity (EQU) explains, on average, 1.76% variations to profit margin. Arising from these findings, the study could not find dynamic relationship between capital structure and firms’ performance. The study, therefore, recommends that manufacturing firms should be pragmatic when choosing capital structure outlays to enhance performance in their activities.},
 year = {2019}
}

Copy | Download

TY  - JOUR
T1  - Dynamic Relationship Between Capital Structure and Quoted Manufacturing Firms’ Performance in Nigeria
AU  - Oyedeji Rasheed Olarewaju
Y1  - 2019/07/01
PY  - 2019
N1  - https://doi.org/10.11648/j.ijefm.20190703.11
DO  - 10.11648/j.ijefm.20190703.11
T2  - International Journal of Economics, Finance and Management Sciences
JF  - International Journal of Economics, Finance and Management Sciences
JO  - International Journal of Economics, Finance and Management Sciences
SP  - 82
EP  - 87
PB  - Science Publishing Group
SN  - 2326-9561
UR  - https://doi.org/10.11648/j.ijefm.20190703.11
AB  - For so long, and most recently, relationship between capital structure and manufacturing firm’s performance has been an issue in financial world. Financial analysts are controversial in advising the investors on the best capital structure to employ while undertaking investment decisions. This paper investigates dynamic relationship between capital structure and quoted manufacturing firms’ performance in Nigeria from 1990-2016. Using panel unit root test to verify the stationarity property of the data, Pedroni conitegration tests and Panel Vector Error Correction Method (PVECM) are employed to examine the equilibrium among the variables as well as analysing the data. There is evidence of long run relationship between capital structure and firms’ performance in Nigeria as revealed by Cointegration test results. Results from PVECM show that, throughout the period i.e. both in the long run and short run, except itself, none of the variables’ shocks in the system significantly accounts for variations in the returns on asset (ROA), given variance error decomposition’s statistics. Also, both in the short run and long run, innovations from only equity (EQU) explains, on average, 1.76% variations to profit margin. Arising from these findings, the study could not find dynamic relationship between capital structure and firms’ performance. The study, therefore, recommends that manufacturing firms should be pragmatic when choosing capital structure outlays to enhance performance in their activities.
VL  - 7
IS  - 3
ER  -

Copy | Download