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The Effect Of Capital Structure On Profitability: An Empirical Analysis Of Listed Firms In Nigeria

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  • Rafiu Oyesola Salawu

Abstract

This study investigates the influence of the capital structure on profitability of quoted companies in Nigeria. The study used secondary data from 1990 to 2004 collected from the selected Annual Report and Accounts of 50 non-financial quoted companies, and Fact Books published by the Nigerian Stock Exchange. The Pooled Ordinary Least Squares (OLS) model, Fixed Effect Model (FEM) and Random Effect Model (REM) were used in the analysis. The results indicate that profitability present a positive correlation with short-term debt and equity and an inverse correlation with long-term debt. Furthermore, the results show a negative association between the ratio of total debt to total assets and profitability. The result suggests that firms in Nigeria depend on external financing. In the Nigerian case, a high proportion (60%) of the debt is represented in short-term debt. The study suggests that companies should implement an effective and efficient credit policy, which will improve the performance level of the turnover and growth. Finally, the top echelon of company management should take interest in the issue of capital structure and constantly monitor its form and adaptability.

Suggested Citation

  • Rafiu Oyesola Salawu, 2009. "The Effect Of Capital Structure On Profitability: An Empirical Analysis Of Listed Firms In Nigeria," The International Journal of Business and Finance Research, The Institute for Business and Finance Research, vol. 3(2), pages 121-129.
    • Handle: RePEc:ibf:ijbfre:v:3:y:2009:i:2:p:121-129
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    References listed on IDEAS

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    Cited by:

    1. Claudia Diana Sabău-Popa & Ramona Simut & Laurențiu Droj & Corneliu Cristian Bențe, 2020. "Analyzing Financial Health of the SMES Listed in the AERO Market of Bucharest Stock Exchange Using Principal Component Analysis," Sustainability, MDPI, vol. 12(9), pages 1-15, May.
    2. Arumona. O. Jonah PhD & Orbunde B. Bemshima. PhD & BELLO, Musibau, 2024. "Capital Structure, Dividend Policy and Firm Value of Listed Non-Financial Companies in Nigeria," International Journal of Research and Innovation in Social Science, International Journal of Research and Innovation in Social Science (IJRISS), vol. 8(4), pages 1279-1296, April.
    3. Mazen Kebewar, 2012. "La structure du capital et la profitabilité : Une étude empirique sur données de panel françaises," Working Papers hal-00751211, HAL.
    4. Adekola Adeola Adebayo & Folajinmi Festus Adegbie & Rafiu Oyesola Salawu, 2021. "Capital Structure and Profitability of Selected Listed Companies in Nigeria," International Journal of Research and Scientific Innovation, International Journal of Research and Scientific Innovation (IJRSI), vol. 8(1), pages 05-22, January.
    5. Md. Ataur Rahman & Md. Sadrul Islam Sarker & Md. Joyen Uddin, 2019. "The Impact of Capital Structure on the Profitability of Publicly Traded Manufacturing Firms in Bangladesh," Applied Economics and Finance, Redfame publishing, vol. 6(2), pages 1-5, March.
    6. Hwerien Rosemary Idamoyibo, 2024. "Financial Structure and Corporate Profitability of Firms in Nigeria: Does Firm Age Act as a Moderator?," International Journal of Research and Innovation in Social Science, International Journal of Research and Innovation in Social Science (IJRISS), vol. 8(7), pages 2259-2271, July.

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    More about this item

    Keywords

    Pooled Ordinary Least Squares; Fixed Effect Model; Random Effect Model; capital structure; profitability;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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