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Capital Structure and Value of Nigerian Manufacturing Companies

Author

Listed:
  • Kamilu Adio SAKA
  • Olukunle Ibukun FATOGUN

    (The Federal Polytechnic Ilaro
    The Federal Polytechnic Ilaro)

Abstract

This study provides current evidence on long term controversies surrounding the relevance of capital structure to the value of firms as desideratum for effective debt policy decisions by corporate organisations. Ex-post Facto design was employed for random selection of 10 manufacturing firms across 6 real sectors of Nigerian manufacturing industry. The study estimated balanced panel data with Panel (OLS) Regression techniques using 180 observations. From findings, the results of preferred Random Effect estimation at 5% level of significance show that measures of capital structure such as debt-to-equity and debt-to-total assets have insignificant effects on value of firms when proxy by Tobin’s Q. Thus, the study re-affirms the claim of M-M Approach that capital structure does not matter when it comes to firm’s performance in term of stock market efficiency. In practice, therefore, management should consider the use of debt as last option for financing profitable projects.

Suggested Citation

  • Kamilu Adio SAKA & Olukunle Ibukun FATOGUN, 2021. "Capital Structure and Value of Nigerian Manufacturing Companies," Journal of Economics and Financial Analysis, Tripal Publishing House, vol. 5(1), pages 81-95.
    • Handle: RePEc:trp:01jefa:jefa0046
    DOI: 10.1991/jefa.v5i1.a42
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    References listed on IDEAS

    as
    1. Prince Acheampong & Evans Agalega & Albert Kwabena Shibu, 2014. "The Effect of Financial Leverage and Market Size on Stock Returns on the Ghana Stock Exchange: Evidence from Selected Stocks in the Manufacturing Sector," International Journal of Financial Research, International Journal of Financial Research, Sciedu Press, vol. 5(1), pages 125-134, January.
    2. Strebulaev, Ilya A. & Yang, Baozhong, 2013. "The mystery of zero-leverage firms," Journal of Financial Economics, Elsevier, vol. 109(1), pages 1-23.
    3. Fosu, Samuel, 2013. "Capital structure, product market competition and firm performance: Evidence from South Africa," The Quarterly Review of Economics and Finance, Elsevier, vol. 53(2), pages 140-151.
    4. Samuel Fosu, 2013. "Capital Structure, Product Market Competition and Firm Performance: Evidence from South Africa," Discussion Papers in Economics 13/11, Division of Economics, School of Business, University of Leicester.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Capital Structure; Debt; Equity; Value; Tobin’s Q; Fixed Effect Model; Random Effect Model.;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • C20 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - General
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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