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The Effect of Capital Structure Choice on the Performance of Corporate Organizations: A Case of Quoted Agro-Based Firms in Nigeria

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  • Bassey, Nsikan Edet

    (Akwa Ibom State University, Ikot Akpaden, Mkpat Enin, Akwa Ibom State, Nigeria)

  • Ukpe, Offiong Uma

    (Akwa Ibom State University, Ikot Akpaden, Mkpat Enin, Akwa Ibom State, Nigeria)

  • Solomon, Ubong Udo

    (Hutton School of Business, University of the Cumberlands, Williamsburg)

Abstract

The study analyzed the effect of capital structure choice on the performance of agro-based firms in Nigeria. Agro-based performance was measured using Return on Equity (ROE) and Return on Asset (ROA). Secondary data were collected from 20 quoted firms for the period 2007-2013 and analyzed using the Ordinary Least Square (OLS) regression technique. Data were first examined for stationarity using the Augmented Dickey Fuller unit root test. Result revealed that all the variables were stationary at levels except Return on equity (ROE), long-term debt (LTD) and Retained earnings (RE) that were later stationary at first difference. The OLS result revealed that the major positive determinants of performance were long-term debt, equity and retained earnings. Among the variables that impacted negatively on agro-based performance were total debts and short-term debts finances. Hence, to enhance agro-based performance, agro financial managers should avoid excessive debt, rather, in attempting to raise debt should employ moderate long-term debt that has long repayment period with less repayment pressure. They should also strive to retain part of their profit while ensuring high use of equity capital as part of their long-term financing decision.

Suggested Citation

  • Bassey, Nsikan Edet & Ukpe, Offiong Uma & Solomon, Ubong Udo, 2017. "The Effect of Capital Structure Choice on the Performance of Corporate Organizations: A Case of Quoted Agro-Based Firms in Nigeria," Bulletin of Business and Economics (BBE), Research Foundation for Humanity (RFH), vol. 6(2), pages 58-67, June.
    • Handle: RePEc:rfh:bbejor:v:6:y:2017:i:2:p:58-67
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    Cited by:

    1. Ning Wu & Jingyi Zhao & Mohammed Musah & Zhiqiang Ma & Lijuan Zhang & Yutong Zhou & Yongzheng Su & Joseph Kwasi Agyemang & Juliana Anyei Asiamah & Siqi Cao & Linnan Yao & Kaodui Li, 2023. "Do Liquidity and Capital Structure Predict Firms’ Financial Sustainability? A Panel Data Analysis on Quoted Non-Financial Establishments in Ghana," Sustainability, MDPI, vol. 15(3), pages 1-21, January.

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    More about this item

    Keywords

    Agro-based firms; Performance and capital structure;

    JEL classification:

    • Q10 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - General
    • Q19 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Other

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