Open AccessCapital Structure and Profitability of Manufacturing Firms listed on the Nigerian Stock Exchange
Author(s) -
Gideon Tayo Akinleye,
LovethOluwatosin Akomolafe
Publication year - 2019
Publication title -
information management and business review
Language(s) - English
Resource type - Journals
ISSN - 2220-3796
DOI - 10.22610/imbr.v11i3(i).2944
Subject(s) - hausman test , profitability index , capital structure , stock exchange , monetary economics , panel data , economics , debt , debt to capital ratio , finance , econometrics , business , fixed effects model , return on equity , equity ratio
This study examined capital structure and profitability of manufacturing firms listed on theNigerian stock exchange. Specifically the study analyzed the impact of disaggregated variables of debt finance(Short term debt and long term debt) and equity finance (share capital and share premium) on profit aftertax. Secondary data were gathered from annual reports of sampled firms over a period of ten years (2008-2017) and were analyzed using panel data estimators such as pooled OLS estimator, fixed effect estimator,random effect estimator, Hausman test, and Pesaran test of cross sectional dependence. The findings revealedthat short term debt has insignificant positive effect on profit after tax of manufacturing firms showing inspecific term a coefficient estimate of 0.114985 (p=0.5890> 0.05) long term debt exerts significant positiveimpact on profit after tax, with specific coefficient estimate of 0.578290 (p=0.0001 0.05). The study concluded that short term debt has declining effect on the profitability ofmanufacturing firms in the country, while the long term variable of debt finance of firms spurs the rate ofprofitability. In clear term disaggregated debt finance subsets exerts significant effect on the profitability offirms sampled in the study. On the other hand equity finance disaggregated into share capital and sharepremiums reflect that share capital has significant positive effect on profit after tax, while share premium hasinsignificant negative effect on profit after tax.