Capital Structure and Financial Performance of Nigerian Listed Firms: An Agency Cost Theory Perspective

Journal of Contemporary Accounting and Security Studies (JOCASS), October 2018, vol. 2, p77-89, ISSN: 26367076. A publication of Department of Accounting, Nigeria Police Academy, Wudil, Kano, Nigeria.

16 Pages Posted: 12 Jun 2019

See all articles by Jimba Isiaka Kareem

Jimba Isiaka Kareem

Afe Babalola University, Ado-Ekiti

Muideen Adeseye Awodiran

Afe Babalola University

Date Written: 2018

Abstract

The choice of how business activities are financed is vital to every firm. This is because optimal or balanced capital mix between debt and equity impacts on the firm’s value as well as its market valuation. However, optimal capital mix has over the years attracted attention due to its aforementioned impacts with previous studies finding mixed results. The study examined the effect of capital structure on financial performance of 40 selected firms listed on the Nigeria Stock Exchange. Secondary data were obtained from annual reports and accounts of the sample firms for a ten year period (2007-2016), and were analysed using descriptive and inferential statistics; panel least regression technique. Hausman test was also conducted which favoured fixed-effect model. The study found a statistically significant positive relationship between proxies of financial performance (ROE and ROA) and capital structure. The study recommended that top management of listed firms in Nigeria should judiciously mix capital structure components to enhance the productivity and profitability of their companies.

Keywords: Capital Structure, Financial Performance, Agency Cost Theory

JEL Classification: G32

Suggested Citation

Jimba, Kareem Isiaka and Awodiran, Muideen Adeseye, Capital Structure and Financial Performance of Nigerian Listed Firms: An Agency Cost Theory Perspective (2018). Journal of Contemporary Accounting and Security Studies (JOCASS), October 2018, vol. 2, p77-89, ISSN: 26367076. A publication of Department of Accounting, Nigeria Police Academy, Wudil, Kano, Nigeria. . Available at SSRN: https://ssrn.com/abstract=3395760

Kareem Isiaka Jimba

Afe Babalola University, Ado-Ekiti ( email )

Nigeria

Muideen Adeseye Awodiran (Contact Author)

Afe Babalola University ( email )

KM 8.5, Afe Babalola Way,
P.M.B 5454
Ado-Ekiti, Ekiti State, Western 234432
Nigeria

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