Open AccessCAPITAL STRUCTURE AND PROFITABILITY OF CONSUMER GOODS MANUFACTURING COMPANIES IN NIGERIA
Author(s) -
Awonuga Oluwatomilayo Omotoyosi,
AUTHOR_ID,
Alalade Yimka,
AUTHOR_ID
Publication year - 2021
Publication title -
international journal of advanced research
Language(s) - English
Resource type - Journals
ISSN - 2320-5407
DOI - 10.21474/ijar01/13860
Subject(s) - profitability index , return on equity , return on assets , business , hausman test , capital structure , panel data , return on capital employed , market liquidity , econometrics , economics , finance , fixed effects model , capital formation , financial capital , microeconomics , debt , profit (economics)
The manufacturing sector in Nigeria is characterized by liquidity challenges due to the rising cost of energy, multiple taxations, high-interest rates, poor accessibility to loans and foreign exchange instability which affect profitability. However, the right mix of capital structure is said to correlate with profitability. This study, therefore, determined the effect of capital structure on the profitability of selected manufacturing companies in Nigeria. Employing ex-post facto design, secondary data from 10 manufacturing firms were captured. The Hausman test determined the suitability of random effects panel regression to estimate the effect of capital structure variables on ROE and ROA. The four hypotheses of the study were tested at the 5% level of significance. Results of the study showed that capital structure has a significant effect on return on equity (ROE) with an Adjusted R-squared value of 0.876871 and F- statistics of 236.0122, on return on asset (ROA) with an Adjusted R-squared value of 0.080555 and F- statistics of 3.891215. The study concluded that although the capital structure is vital to the profitability of firms it is not adequately planned in manufacturing firms in Nigeria and has hampered the profitability. The study recommended that manufacturing firms must make good decisions relating to their capital structure if earnings must improve.