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Financial Structure and Performance of Quoted Consumer Goods Firms in Nigeria

J.K.J. Onuora; Ezeonu Caritas Uchenna; Okonkwo, Maureen Nnenna and Amaechi Uchenna Hyacinth

Abstract

Financial structure is the combination of debt and equity employed by companies in financing its business operations. This study was motivated by two conflicting issues in theoretical and empirical literatures. Theoretically, there is no consensus on the effect of financial structure on corporate performance. Modigliani and Miller preposition is that value of the firm is independent of its capital structure. The static trade-off theory states that optimal financial structure is obtained where the net tax advantage of debt financing balances leverages related to costs such as financial distress and bankruptcy, holding firm's assets and investment decisions constant. On the contrary, pecking order theory assumes that there is no optimal financial structure where companies prefer internal financing rather than debt financing. Empirical findings on the nexus between financial structure and corporate performance are mixed and conflicting. The main objective of this study examines the effect of financial structure on performance of quoted consumer goods firms in the Nigeria. Specifically, the study examined the effect of total debt to total assets ratio on return on assets of performance of quoted consumer goods firms in the Nigeria. Evaluate the effect of total debt to total equity ratio on return on equity of performance of quoted consumer goods firms in the Nigeria and assess the effect of short-term debt to total equity ratio on net profit margin of performance of quoted consumer goods firms in the Nigeria. The Descriptive Statistics, Correlation analysis, Fixed and Random Effect Test was the technique employed in estimating the models. The result of the analysis revealed that total debt to total assets, total debt to total equity and short-term debt to total assets has no significant effect on financial performance of listed consumer goods sector in Nigeria. The study concludes that financial structure has positive and significant effect on financial performance of l

Keywords

Financial Structure Firm Performance

References

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