THE EFFECT OF CAPITAL STRUCTURE ON PROFITABILITY: AN EMPIRICAL ANALYSIS OF LISTED FIRMS IN NIGERIA

Rafiu Oyesola Salawu

The International Journal of Business and Finance Research, 2009, vol. 3, issue 2, 121-129

Abstract: This study investigates the influence of the capital structure on profitability of quoted companies in Nigeria. The study used secondary data from 1990 to 2004 collected from the selected Annual Report and Accounts of 50 non-financial quoted companies, and Fact Books published by the Nigerian Stock Exchange. The Pooled Ordinary Least Squares (OLS) model, Fixed Effect Model (FEM) and Random Effect Model (REM) were used in the analysis. The results indicate that profitability present a positive correlation with short-term debt and equity and an inverse correlation with long-term debt. Furthermore, the results show a negative association between the ratio of total debt to total assets and profitability. The result suggests that firms in Nigeria depend on external financing. In the Nigerian case, a high proportion (60%) of the debt is represented in short-term debt. The study suggests that companies should implement an effective and efficient credit policy, which will improve the performance level of the turnover and growth. Finally, the top echelon of company management should take interest in the issue of capital structure and constantly monitor its form and adaptability.

Keywords: Pooled Ordinary Least Squares; Fixed Effect Model; Random Effect Model; capital structure; profitability (search for similar items in EconPapers)
JEL-codes: G32 (search for similar items in EconPapers)
Date: 2009
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

Downloads: (external link)
http://www.theibfr2.com/RePEc/ibf/ijbfre/ijbfr-v3n2-2009/IJBFR-V3N2-2009-9.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ibf:ijbfre:v:3:y:2009:i:2:p:121-129

Access Statistics for this article

The International Journal of Business and Finance Research is currently edited by Terrance Jalbert

More articles in The International Journal of Business and Finance Research from The Institute for Business and Finance Research
Bibliographic data for series maintained by Mercedes Jalbert ( this e-mail address is bad, please contact ).