Impact of Capital Structure on Financial Performance of Selected Quoted Food and Beverages Manufacturing Industries in Nigeria

Abstract

Capital structure decisions remain the fundamental financing decision in the corporate world. The decision affects both financial performance of firms and returns accrued to providers of capital. Therefore, in order to determine the blend of capitals that maximizes firm’s performance, this study investigates the impact of capital structure on firm’s performance in the food and beverages manufacturing industries in Nigeria. We adopted an ex-post factor research design which involves the use of cross sectional time series data extracted from the audited annual accounts of ten food and beverages industries quoted in the Nigeria stock exchange covering the period of six years (2012 – 2017). To measure the strength of association between the variables, Pearson moment correlation analysis was used and the result revealed that size of firm and equity are positively correlated with financial performance. However, from the panel regression results, we found out that Debt finance significantly impacted the performance of the industries (ROCE, ROA, and EPS) negatively. While the impact Firms size have on the selected food and beverages industries was relatively low, Equity finance contributed hugely and positively to the performance of the firm. This study therefore concludes that investment financed by equity increases the value of firm more than when it is financed through debt. Based on the findings, the study, therefore recommends that firms should consider taking debts with lower cost to avoid erosion of shareholders’ value and the risk of bankruptcy. Furthermore, due to manipulative tendencies in reporting profits, financial performance measurement should be based on share prices rather than accounting profits.