Cost of Capital and Corporate Performance of Selected Quoted Nigerian Manufacturing Firms

Author(s)

Rufus I. Akintoye , Folajimi Festus ADEGBIE , Professor Olalekan Askhia , Dr. Abolade Francis AKINTOLA ,

Download Full PDF Pages: 01-06 | Views: 1010 | Downloads: 290 | DOI: 10.5281/zenodo.3496473

Volume 8 - June 2019 (06)

Abstract

The issue of how a company is financed has been of concern to finance managers for a long time. The optimal capital structure may be defined as where the weighted average cost of capital is at the lowest while maximizing the market value of the firm. The objective of our study is to determine how capital structure affects the corporate performance of selected quoted manufacturing companies in Nigeria over a period of seven (7) years (2008-2014) using twenty (20) quoted manufacturing firms. The work employed a fixed effect and random effect model to determine the effect of the cost of capital on corporate performance. The ex-post facto research design was used for this study. The secondary data were obtained from the financial statements and Facebook published by the Nigerian Stock Exchange (NSE). Descriptive statistics and linear regressions were used for the study. The results of the analysis showed that cost of equity had a significant and positive effect on net profit before tax, cost of debt has a positive relationship on the market price per share while the weighted average cost of capital had a negative effect on earnings per share in Nigeria quoted manufacturing firms. Based on evidence from the findings, we recommend that companies management should ensure that financial decisions made by them are in consonance with the shareholders’ wealth maximization objectives which extends to profit maximization objective of the firm. The study further recommends that financial managers should take factor like internal financing into consideration as recommended by pecking order theory in their decision of capital structure

Keywords

Capital structure, corporate performance, maximization of shareholders wealth; Maximization of profit, earnings per share.

References

        i.            Abor, J. (2005). The effect of capital structure on profitability: An empirical analysis of listed firms in Ghana. The Journal of Risk Finance, 6(5), 37-48.

      ii.            Agboola, A.A., & Salawu, R.O. (2008). The determinants of capital structure of large non-financial listed firms in Nigeria. The International Journal of Business and Finance Research, 2(2) 75-84

    iii.            Alkhatib, K. (2012). The determinants of leverage of listed companies. International Journal of       Business and Social Science, 3 (24), 25-32.    

     iv.            Barberopoulos, V. (2011). Challenges facing the manufacturing/fabrication sector over local content production. Paper presented at Manufacturer Association of Nigeria NCCF 2011   Workshop. 

       v.            Birru, M.W. (2016). The impact of capital structure on financial performance of commercial banks in Ethiopia. Journal of Management and Business Research, 16(8), 43-52. 

     vi.            Chechet, I.L. & Olayiwola, A.B. (2014). Capital structure and profitability of Nigerian quoted firms:The agency cost theory perspective. American International Journal of Social     Science, 3(1), 139-158

   vii.            Chinaemerem, O., C., & Anthony, O. (2012). Impact of capital structure on the financial    performance of Nigerian firms. Arabian Journal of Business and Management         Review, 1(12), 43-61.

 viii.            Denis, S., Aftab, D., & Bernd, B. (2000). Cost of capital of business units: Comparison of methodology in previous empirical research, American Business Review, 8(2), 117-131.

     ix.            Gonzalez, M., Guzman, A., Pombo, C., & Trujillo, M.A (2012). Family firms and debt: Risk aversion versus risk of losing control. Journal of Business Research 3(4), 1-11.

       x.            Holmes, S., & Kent, P. (1991). An empirical analysis of the financial Structure of small and large Australian manufacturing enterprises. Journal of Finance, 1(2), 141-154.

     xi.            Javed, Z.H., Rao, H., Akram, B. & Nazir, M.F. (2015). Effect of financial leverage on         performance of the firms: Empirical evidence from Pakistan. Journal Economics and    Business, 6 (5), 87-95.  

   xii.            Micheal, J. (1992). Importance of debt capital in corporate finance. Journal of Finance, 36, 359-   371.

 xiii.            Onuoha, B.C (2012). The environments of the manufacturing sector in Nigeria: Strategies towards vision 2020. International Business and Management, 5(1), 67-74

 xiv.            Osuji, C.C., & Odita, A. (2012). Impact of capital structure on the financial performance    of Nigerian firms. Arabian Journal Business and Management Review, 1 (12), 43-61. 

Cite this Article: