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Capital Structure and Profitability of Manufacturing Firms listed on the Nigerian Stock Exchange

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  • Gideon Tayo AKINLEYE
  • LovethOluwatosin AKOMOLAFE

Abstract

This study examined capital structure and profitability of manufacturing firms listed on theNigerian stock exchange. Specifically the study analyzed the impact of disaggregated variables of debt finance(Short term debt and long term debt) and equity finance (share capital and share premium) on profit aftertax. Secondary data were gathered from annual reports of sampled firms over a period of ten years (2008-2017) and were analyzed using panel data estimators such as pooled OLS estimator, fixed effect estimator,random effect estimator, Hausman test, and Pesaran test of cross sectional dependence. The findings revealedthat short term debt has insignificant positive effect on profit after tax of manufacturing firms showing inspecific term a coefficient estimate of 0.114985 (p=0.5890> 0.05) long term debt exerts significant positiveimpact on profit after tax, with specific coefficient estimate of 0.578290 (p=0.0001< 0.05) share capital exertssignificant positive effect on profit after tax, with coefficient estimate of 0.784525 (p=0.0000< 0.05) sharepremium exerts insignificant negative effect on profit after tax, with coefficient estimate of -0.000395 (p=0.9924> 0.05). The study concluded that short term debt has declining effect on the profitability ofmanufacturing firms in the country, while the long term variable of debt finance of firms spurs the rate ofprofitability. In clear term disaggregated debt finance subsets exerts significant effect on the profitability offirms sampled in the study. On the other hand equity finance disaggregated into share capital and sharepremiums reflect that share capital has significant positive effect on profit after tax, while share premium hasinsignificant negative effect on profit after tax.

Suggested Citation

  • Gideon Tayo AKINLEYE & LovethOluwatosin AKOMOLAFE, 2019. "Capital Structure and Profitability of Manufacturing Firms listed on the Nigerian Stock Exchange," Information Management and Business Review, AMH International, vol. 11(3), pages 27-34.
    • Handle: RePEc:rnd:arimbr:v:11:y:2019:i:3:p:27-34
    DOI: 10.22610/imbr.v11i3(I).2944
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    References listed on IDEAS

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    1. Adedoyin Isola LAWAL, 2014. "Capital structure and the value of the firm: evidence from the Nigeria banking industry," The Journal of Accounting and Management, Danubius University of Galati, issue 1, pages 31-41, April.
    2. repec:aer:wpaper:176 is not listed on IDEAS
    3. Stewart C. Myers & Nicholas S. Majluf, 1984. "Corporate Financing and Investment Decisions When Firms Have InformationThat Investors Do Not Have," NBER Working Papers 1396, National Bureau of Economic Research, Inc.
    4. Myers, Stewart C. & Majluf, Nicholas S., 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Journal of Financial Economics, Elsevier, vol. 13(2), pages 187-221, June.
    5. Joshua Abor, 2005. "The effect of capital structure on profitability: an empirical analysis of listed firms in Ghana," Journal of Risk Finance, Emerald Group Publishing, vol. 6(5), pages 438-445, November.
    6. Julius B. Adesina & Barine M. Nwidobie & Oluwatosin O. Adesina, 2015. "Capital Structure and Financial Performance in Nigeria," International Journal of Business and Social Research, MIR Center for Socio-Economic Research, vol. 5(2), pages 21-31, February.
    7. Cyrille Schwellnus & Jens Matthias Arnold, 2008. "Do Corporate Taxes Reduce Productivity and Investment at the Firm Level?: Cross-Country Evidence from the Amadeus Dataset," OECD Economics Department Working Papers 641, OECD Publishing.
    8. Md. Nur Alam Siddik & Sajal Kabiraj & Shanmugan Joghee, 2017. "Impacts of Capital Structure on Performance of Banks in a Developing Economy: Evidence from Bangladesh," IJFS, MDPI, vol. 5(2), pages 1-18, May.
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    Cited by:

    1. Joshua Adewale, ADEJUWON & Abisola Mutiat, LASISI & Adefisayo Oluwakemi, ADEJUWON, 2023. "Capital Structure and Financial Performance of Quoted Telecommunication Companies in Nigeria," Multidisciplinary Journal of Social Sciences, Association of Forensic Accounting Researchers (AFAR), vol. 3(1), pages 152-180, June.

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