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The Evaluation of Liquidity and Capital Structure of Manufacturing Firms in Nigeria

Author

Listed:
  • Elijah Adeiza Evinemi

    (Department of Accounting, University of Nigeria Nsukka, Nigeria)

  • Steve Emeka Emengini

    (Faculty of Business Administration, University of Nigeria, Enugu Campus, Enugu State Nigeria)

Abstract

Firms' choices regarding their capital structure influence their net cost or value. Firm characteristics such as firm size, liquidity, growth opportunities, asset tangibility, non-debt tax shield and cost of equity are specific traits of firms. This study investigates the effect of firm liquidity on capital structure of manufacturing firms in Nigeria. Annual data was obtained from reports of thirty-one (35) manufacturing firms covering the period 2007-2021. The effects of liquidity on capital structure were examined using the panel Fixed/Random effect methods. The summary statistics, correlation analysis, slope heterogeneity and cross-sectional dependence were conducted as pre-estimation procedures. The study employed debt-to-equity and debt-to-asset ratios to capture capital structure, while cash conversion cycle in days was used to measure liquidity. The findings show that liquidity has negative significant relationship in explaining the debt-to-asset of manufacturing firms and no significant effect in explaining the debt-to-equity of manufacturing firms in Nigeria. The study recommends that manufacturing firms embrace innovation as a way of increasing the efficiency of the total assets. Also, manufacturing firms should formulate main policies, which support the implementation of positive cash flow.

Suggested Citation

  • Elijah Adeiza Evinemi & Steve Emeka Emengini, 2024. "The Evaluation of Liquidity and Capital Structure of Manufacturing Firms in Nigeria," International Journal of Economics and Financial Issues, Econjournals, vol. 14(3), pages 212-218, May.
    • Handle: RePEc:eco:journ1:2024-03-24
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    References listed on IDEAS

    as
    1. Sufian Radwan Almanaseer, 2019. "Determinants of Capital Structure: Evidence from Jordan," Accounting and Finance Research, Sciedu Press, vol. 8(4), pages 186-186, November.
    2. T.O. Okegbe & Onyinye Maria-Regina Eneh & Amahalu Nestor Ndubuisi, 2019. "Effect of Firm Characteristics on Capital Structure of Deposit Money Banks Listed on Nigeria Stock," International Journal of Academic Research in Accounting, Finance and Management Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Accounting, Finance and Management Sciences, vol. 9(2), pages 198-210, April.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Firm Characteristics; Liquidity; Debt-to-equity; Debt-to-asset; Manufacturing Firms;
    All these keywords.

    JEL classification:

    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • M14 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Corporate Culture; Diversity; Social Responsibility

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