Capital Structure and Firm Performance in the Nigerian Cement Industry
DOI:
https://doi.org/10.14738/abr.46.2367Abstract
The study examines the impact of capital structure on financial performance of firms in Nigerian cement industry. The population of the study 7 companies, a sample of 4 listed companies were selected. The research design is ex-post factor using two models to analyse the impacts of long term and short term debts on Return on Assets (ROA) and Return on Equity (ROE). The study uses balanced panel data of 20 observations from the 4 listed companies for the periods ranging from 2010-2014. Descriptive statistics, correlation and regression are used as tools of analysis. The study reveals that, there is statistically significant effect between long and short term liability on Return on Assets (ROA) and Return on Equity (ROE). The study however, concluded that the performance of companies in the cement industry is not optimized as a result of their inability to utilized debts in their capital structures. Finally, the paper recommends that, cement companies should encourage the use of long term debt in there capital structure since it has positive impact on their financial performance.
References
Adeyimi, S. B. & Obor, C. S. (2011). Perceived relationship between corporate capital structure and firm value in Nigeria, International Journal of Business and Social Sciences, 2(9):131-143.
Anderson, R. C., Mansi, S. A. & Reeb D. M. (2003). Founding family ownership and the agency cost of debt. Journal of Financial Economics, 68: 263-285.
Antwi, S. & Zhao, X. (2012). Capital structure and firm value: empirical evidence from Ghana. International Journal of Business and Social Science Vol. 3 (22) [Special Issue – November 2012] 103.
Awunyo-Vitor, D. & Badu, J. (2012). Capital structure and performance of listed banks in Ghana. Global Journal of Human Social Science (USA), 12 (5) Version I.
Babalola, A. Y. (2012). Effects of optimal capital structure on firm performance. Journal of Emerging Trend in Economics and Management Sciences 3(2): 131-133.
Barclay, M. & Smith, C. (2005). Capital structure puzzle: The evidence Revised. Journal of Applied Corporate Finance, 17(1):8-17
Berger, A. N. & Bonaccorsi, E. (2006). Capital structure and firm performance: A new approach to testing agency theory and an application to the banking industry. Journal of Banking and Finance 30: 1065-1102.
Bradley, M., Jarrell, G. & Kim, E. H. (1984). On the existence of an optimal capital structure: theory and evidence. Journal of Finance 39, 857-878.
Brailsford, T. J., Oliver, B.R. & Pua, S.L. (2002). On the relation between ownership structure and capital structure. Accounting and Finance 42:1-26.
Brealey, R. A. & Myers, S. C. (2003). Principles of Corporate Finance, New York, and McGraw - Hill.
Brockington, R. (1990). Financial Management, 1992 Edition, ELBS, London.
DeAngelo, H. & Masulis, R. (1980). Optimal capital structure under corporate and personal taxation. Journal of Financial Economics 8(1), 3-29.
Friend, I. and L. Lang (1988). An empirical test of the impact of managerial self-interest on corporate capital structure. Journal of Finance, 43 (2): 271-281.
Frank, Z., M. and Gayol, V. K. (2003). Testing the pecking-order theory of capital structure. Journal of Financial
Economics, 67 (2003): 217-248.
Garko, J. S. (2012). Ownership structure and financial performance of listed Nigerian consumer Goods companies. Bayero Journal of Accounting Research Special Edition, Vol. Pp. 42-52
Ganiyu, Y. O. & Abiodun, Y. B. (2012). The impact of corporate governance on capital structure decision in Nigerian firm. Research Journal in Organisational Psychology and Educational Studies. Vol. 1(2): Pp. 121-128.
Graham, J. (1999). How big are the tax benefits of debt? Journal of Finance 55:1901-1941.
Graham, J. & Harvey, C. (2001): The theory and practice of corporate finance: evidence from the field, Journal of Financial Economics, 60: 187-243.
Grossman, S. J. & Hart, O. (1982). Corporate financial structure and managerial incentives. In McCall, J. (ed.) the Economics of Information and Uncertainty (Chicago: University of Chicago Press).
Gropp, R. & Heider, F. (2009). The determinant of bank capital structure. European central Working Paper.
Harris, M. and Raviv, A. (1988). Corporate Control Contests and Capital Structure. Journal of Financial Economics 20, 55-86.
Harris, M. and Raviv, A. (1990). Capital structure and the informational role of debt. Journal of Finance, 45 (2): 321-49.
Jensen, M. and Meckling, W. (1976): Theory of the firm: managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 3:305-60.
Jensen, M. (1986). Agency costs of free cash flow, corporate finance, and takeovers. American Economic Review, 76: 323-329.
Kochhar, R. (1997). Strategic assets, capital structure, and firm performance. Journal of Financial and Strategic Decisions, 10 (3): pp.23-36.
Kraus, A. & Litzenberger R. (1982). A State-Preference model of optimal financial Leverage, Journal of Finance, 27: 199 – 22
King, M. R. & Santor, E. (2008). Family values: ownership structure, performance and CAPITAL Structure of Canadian firms. Journal of Banking and Finance, 32: 2423- 2432.
Kim, E.H. (1978). A mean-variance theory of optimal structure and corporate debt capacity”. Journal of Finance, 33(1): 45-63.
Leon, J. S. (2013). The impact of capital structure on financial performance of listed manufacturing firm in Sri-Leon. Global journal of common wealth Management perspective, 2(5): 55-62.
Lubatkin, M. & Chatterjee, S. (1994). Extending modern portfolio theory into the domain of corporate diversification: Does it apply? Academy of Management Journal, Vol. 37:109-36.
Mackie-Mason, J. K. (1990). Do firms care who provides their financing? In Hubbard, R.G., ed., asymmetric information, corporate finance, and Investment. A national bureau of Economic Research Project Report, Chicago and London: University of Chicago Press, 63-104.
Margaritis, D. & Psillaki, M. (2009). Capital structure, equity ownership and firm performance, Dept. of Finance, Faculty of Finance, AUT.
McGuire, I., Schneeweis, T. & Hill. T. (1986). Perception of firm quality. A cause result of firm performance. Journal of management, Vol. 16(1): Pp. 167-180.
Modigliani, F. & Miller, M. (1958). The cost of capital, corporate finance and the theory of Investment. American Economic Review, Vol. 48, pp. 261-297.
Miller, M. H. (1977). Debt and Taxes. Journal of Finance Vol. 32 (2): 261- 275.
Muritala, T, (2012). An Empirical Analysis of Capital Structure on Firms’ Performance in Nigeria International Journal of Advances in Management and Economics. Vol.1 (5): 116- 124
Myers, S. C. (1984). The capital structure puzzle. Journal of Finance, Vol. 34, pp. 575 – 592.
Myers, S. C. (1993) still searching for optimal capital structure. Journal of Applied Corporate Finance, Vol. 6 (1): 4
Myres, S. C. (2001). Capital structure. The journal of economic Perspectives, 15 (2): 81-102.
Myers, S. C. & Majluf, N. S. (1984). Corporate financing and investment decision when Firms have Information that Investors do not have. Journal of Financial Economics, Vol. 13:187–221.
Nirajini,A & Priya,K. B. (2013). Impact of capital structure on financial performance of listed trading companies in Sri Lanka. International Journal of Scientific and Research Publications, Vol. 3(5): ISSN 2250-3153.
Ogebe, O., Ogebe. J. & Alewi, K. (2013). The impact of capital structure on firm's performance in Nigeria. MPRA Paper No. 46173
Olokoyo, F. O. (2013): Capital Structure and Corporate Performance of Nigerian Quoted Firms: A Panel Data Approach. African Development Review. Vol. 25 (3), Pp. 358-369.
Onaolapo, A. A. & Kajola, S. O. (2010): “Capital Structure and Firm Performance: Evidence from Nigeria”, European Journal of Economics, Finance and Administrative Sciences, Issue, 25:70- 82.
Oladeji, T. & Olokoyo, F. O. (2014). An empirical analysis of capital structure on performance of Firms in the Petroleum Industry in Nigeria. A Conference Paper at Dept. of Finance, Faculty of Finance, AUT.
Pinegar, M. and Wilbricht, L. (1989). What Managers Think of Capital Structure Theory: A Survey, Financial Management, Pp. 82-91.
Saidu, S. (2014). Capital Structure and Financial Performance of Firms’ in the Nigerian Pension Industry. An Unpublished Dissertation Submitted to School of Postgraduate, Bayero University Kano in Fulfilment of the Requirement of Masters in Accounting.
Salawu, R. O. (2009). The Effect of Capital Structure on Profitability: An Empirical Analysis of listed firms in Nigeria. The International Journal of Business and Finance Research; Vol. 3 (2). Pp 16-18.
Sulaiman, M.A. Al-Sakran, (2001). Leverage Determinants in the Absence of Corporate Tax System: The Case of Non-Financial Publicly Traded Corporations in Saudi Arabia Managerial Finance Vol. (27): Pp. 261 – 275.
Sulaiman, A. (2001). Capital Structure’s Effect on Firms Performance; Evidence from listed Saudi Companies, M.Sc., Theses at St. Mary’s University.
Shleifer, A. and Vishny, R. W. (1986). Large shareholders and corporate control. Journal of Political Economy. Vol. 94, Pp. 461-488.
Downloads
Published
How to Cite
Issue
Section
License
Copyright (c) 2016 Archives of Business Research
This work is licensed under a Creative Commons Attribution 4.0 International License.
