+234 813 0686 500
+234 809 3423 853
info@grossarchive.com

THE RELATIONSHIP BETWEEN A FIRM’S CAPITAL STRUCTURE AND ITS PERFORMANCE IN NIGERIA

  • Type:Project
  • Chapters:5
  • Pages:75
  • Methodology:Regression Econometric Analysis
  • Reference:YES
  • Format:Microsoft Word
(Banking and Finance Project Topics & Materials)
THE RELATIONSHIP BETWEEN A FIRM’S CAPITAL STRUCTURE AND ITS PERFORMANCE IN NIGERIA
CHAPTER ONE

INTRODUCTION
1.1   BACKGROUND TO THE STUDY    
Financing firm’s investment is usually done by equity, increasing creditors’ claims or through a combination of debt and equity. This various means of financing and many more represent the financial structure of a firm (Pandey: 2005). It is an important factor in every firm’s managerial decision, as it influences the equity holders’ returns and risk which in turn affect the cost of capital and market price of the stock. These various means of financing and their respective cost of capital and benefit necessitated the need for financing decision which centers on the issue of determining the appropriate optimal capital structure of a firm.
    Capital structure decision is concerned with the ratio of debt to equity that will maximize the returns of the firm. Debt as a source of finance has several advantages. First interest paid on it is tax deductible, which lowers the effective cost of debt. Secondly, debt holders get a fixed return, so stockholders do not have to share their profits if business is extremely successful. Debt also has disadvantages: the higher a company’s debt ratio the higher its interest rate will be. Again, if a firm falls on hard times, and operating income is not sufficient to cover interest charges, stockholders will have to cover the shortfall, and if they cannot, bankruptcy will result (Eugene, 1995).
    The modern theory of capital structure began with the celebrated paper of Modigliani and Miller (1958). They pointed the direction that such theory must take by showing under what conditions capital structure is irrelevant (Milton and Arthur 1991). In their article, they showed that in a frictionless world the level of Debt in the capital structure is unrelated to the value of the firm, but in the real world, where interest on debt are tax deductable, Debt level is positively related to the value of the firm. Also, arguments have ensued between those who believe that there is an optimum capital structure and those who do not believe; and there is yet no resolution of the conflict, while traditional approach asserts the existence of optimum capital structure, the proponents of M-M approach argue otherwise. It is hoped that with the outcome of this study, an optimal capital structure with respect to firm’s performance relative to the Nigeria context will evolve.
1.2    STATEMENT OF THE RESEARCH PROBLEM
    One of the central issues in both the theory and practice of financial management is the problem of determining the relationship between capital structure and the value of the firm. There have been different and conflicting theories on the relationship between capital structure and the value of the firm. This issue has been a contentious area in the study of finance. Thus different schools of thoughts have emerged with their theoretical underpinnings and appeals.
    In Nigeria, the Capital market development, Banking sector reforms and the array of investment opportunities among listed firms have encouraged, facilitated and made frequent loan acquisition and the issue of financial securities as sources of finance to companies. These developments attracted the attention of both Nigerians and foreign investors into the new windows of investment, cumulating into oversubscription of issues and refunds to investors.
    In view of the risky nature of these sources of finance on the part of firms, there is need to weigh the impact of capital structure on the performance of the firm when deciding on their choice of financing as this will surely assist firms in Nigeria in their choice of investment and capital structure decision.
1.3    RESEARCH QUESTIONS
    The study seeks to provide answers to the following research questions:
What is the relationship between leverage and firm’s performance in Nigeria?
What is the relationship between equity ratio and firm’s performance in Nigeria?
Do taxes influence firm’s performance in Nigeria?
Is there any significant relationship between firm size and firm’s performance in Nigeria?
Does market turnover affect firm’s performance in Nigeria?
What is the relationship between interest rate and firm’s performance in Nigeria?
1.4    OBJECTIVES OF THE STUDY
    The objectives of the study are to:
Determine the relationship between leverage and firm’s performance in Nigeria.
Examine the impact of equity ratio on firm’s performance in Nigeria.
Assess the relationship between taxes and firm’s performance in Nigeria.
Determine the relationship between firm size and firm’s performance in Nigeria.
Determine the relationship between market turnover (proxied by the ratio of market capitalization to     GDP) and firm’s performance in Nigeria.
Examine the impact of interest rate on firm’s performance in Nigeria.
1.5    HYPOTHESES OF THE STUDY
    The followings are the hypotheses of the study:
There is no significant relationship between leverage and firm’s performance in Nigeria.
Equity ratio does not have any significant impact on firm’s performance in Nigeria.
There is no significant relationship between taxes and firm’s performance in Nigeria.
There is no significant relationship between firm size and firm’s performance in Nigeria.
Market turnover does not have any significant relationship with firm’s performance in Nigeria.
Interest rate has no significant impact on firm’s performance in Nigeria.
1.6    RELEVANCE OF THE STUDY
    This study will assist firms and managers of firms in formulating profitable financing policy. To the potential debt holders and trade creditors, it will provide useful insight to the interpretation of capital structure of firms where they are stakeholders. Future researchers shall not be left out, as far as the relevance of this study is concerned. Potential equity holders will also benefit from this research, as they would be informed on the implications of different level of leverage, on expected returns. This study, would serve also as a reference point for future researchers who wish to carry out further study on the topic
.1.7    SCOPE OF THE STUDY
    It is a Nigeria-specific study covering a period of 14 years (2001 – 2014). Relevant data are sourced from the Central Bank of Nigeria Statistical Bulletin (2015). A sample of Four (4) manufacturing firms listed on the Nigerian stock exchange was used.
1.8    LIMITATIONS OF STUDY
Some of the noticeable limitations of the study are:
Accessing Data on the true borrowing profile of the firms in Nigeria seems to be difficult as some firms may intend to present a sound annual financial statement.
    There is also the problem of the use of secondary data which in some cases are not accurate.
    With respect to the method of data analysis, it true that no best method of data analysis exist in the world because each one has its own limitation. Hence, the ordinary least square method (OLS) employed in this study may not be sophisticated enough to give an all-embracing analysis but efforts will be made to ensure that errors are minimize and the results obtained are reliable, verifiable and acceptable for policy implementation.

THE RELATIONSHIP BETWEEN A FIRM’S CAPITAL STRUCTURE AND ITS PERFORMANCE IN NIGERIA

Share This

Details

Type Project
Department Banking and Finance
Project ID BFN0855
Price ₦3,000 ($9)
Chapters 5 Chapters
No of Pages 75 Pages
Methodology Regression Econometric Analysis
Reference YES
Format Microsoft Word

500
Leave a comment...

    Details

    Type Project
    Department Banking and Finance
    Project ID BFN0855
    Price ₦3,000 ($9)
    Chapters 5 Chapters
    No of Pages 75 Pages
    Methodology Regression Econometric Analysis
    Reference YES
    Format Microsoft Word

    Related Works

    TABLE OF CONTENT CHAPTER ONE: INTRODUCTION 1.1 BACKGROUND TO THE STUDY 1.2 STATEMENT OF THE RESEARCH PROBLEM 1.3 RESEARCH QUESTIONS 1.4 OBJECTIVES OF THE STUDY 1.5 HYPOTHESES OF THE STUDY 1.6 RELEVANCE OF THE STUDY 1.7 SCOPE OF THE STUDY 1.8 LIMITATIONS OF STUDY CHAPTER TWO:... Continue Reading
    Abstract There exists divergence of opinion in literature on the relationship between capital structure and firms financial performance. This mix of opinions makes the direction of the relationship between debt holders and equity holders to be controversial. Therefore, this study investigated the impact of capital structure on financial... Continue Reading
    ABSTRACT There exists divergence of opinion in literature on the relationship between capital structure and firms financial performance. This mix of opinions makes the direction of the relationship between debt holders and equity holders to be controversial.... Continue Reading
    CHAPTER ONE INTRODUCTION 1.1 BACKGROUND TO THE STUDY Financing firm’s investment is usually done by equity, increasing creditors’ claims or through a combination of debt and equity. This various means of financing and many more represent the financial... Continue Reading
    Abstract The topic of study is the Effect of capital structure on earnings per share of conglomerate firms in Nigeria. The researcher applied the expo facto research design. The researcher used the correlation and regression. Above methods in the analysis of the data. The findings of the study shows that:  Debt equity influences the earnings per... Continue Reading
    ABSTRACT Taking financing decision is one of the major functions of a financial manager. A corporation may decide to use all equity capital or a combination of debt and equity capital. However, the decision to use debt as part of a corporation capital is important as it can magnify shareholders returns and also increase the risk of such returns. ... Continue Reading
    ABSTRACT Taking financing decision is one of the major functions of a financial manager. A corporation may decide to use all equity capital or a combination of debt and equity capital. However, the decision to use debt as part of a corporation capital is important as it can magnify shareholders... Continue Reading
    ABSTRACT This study examines the impact of capital structure on the performance of the banking industry in Nigeria. The objective of the study was to examine the effect of total debt on the bank profitability and also to determine the impact of equity on the profitability of the bank. The focus of this study is on five (5) selected bank comprising... Continue Reading
    ABSTRACT We examine the impact of capital structure on firm’s performance in Nigeria for a period 2010 to 2014.Statistical and econometric techniques of descriptive statistics and panel data analysis were employed in the analysis of the data. Results from the... Continue Reading
    ABSTRACT This study examined the impact of capital expenditure and corporate performance. By nature this study necessitated empirical approach, thus, utilizes ex-post facto data. The population of the study which is also the sample size consists of all the quoted... Continue Reading