Funding Structure and Performance of Quoted Manufacturing Firms in Nigeria
Keywords:
Company, Quoted, Production, Gearing, Hausman
Abstract
This study examines the relationship between funding structure and the performance of quoted manufacturing firms (QMFs) in Nigeria from 2012 to 2022. The ratio of short-term financial liabilities to equity (SFLE), ratio of long-term financial liabilities to equity (LFLE), ratio of lease liabilities to equity (LLE), and the ratio of trade and other payables to equity (TPE) were used as indices of funding structure, while gross profit (LGPT) was used as proxy for performance. We sourced for data from the annual reports of thirty-two QMFs and thus giving a total observation of 352. The study made use of an ex-post facto research design. The study employed the descriptive statistics, unit root, Hausman, Panel Causality, and the Fixed Effect Panel Ordinary Least Square (POLS) tests at the 95% confidence interval. The unit root test shows that all the variables are stationary at level requiring the Hausman test that verifies that the Fixed Effect POLS is the more appropriate technique to apply in this study. The Fixed Effect POLS shows that LFLE and TPE are positive and significant to LGPT, LLE is negative and significant, and SFLE is negative and insignificant to LGPT. The Panel Causality test shows that there are uni-directional supports from LFLE, SFLE, and TPE to LGPT for QMFs in Nigeria. However, there is bi-directional support from LLE and LGPT. The study concludes that the ratio of short and long-term financial liabilities as well as trade and other payables to equity affect the earnings of QMFsin Nigeria. The study recommends that QMFs should continue to use trade and other payables and long-term financial liabilities as means of funding their investments since it promotes their earnings.
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References
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Ahmad, N., Salman, A., & Shamsi, A. (2015). Impact of financial leverage on firms’ profitability: An investigation from cement sector of Pakistan. Research Journal of Finance and Accounting, 6(7), 2222-1697.
Ahmed, F., Awais, I., & Kashif, M. (2018). Financial leverage and firms’ performance: Empirical evidence from KSE-100 Index. Etikonomi, 17(1), 45-56.
Al-Tally, H. A. (2014). An investigation of the effect of financial leverage on firm financial performance in Saudi Arabia's public listed companies (Doctoral dissertation, Victoria University).
Antweiler, W. & Frank, M. Z. (2006). Do U.S. Stock Markets Typically Overreact to Corporate News Stories? Working Paper, University of British Columbia and University of Minnesota.
Baker, K. H., Powell, G. E. & Veit, E. T. (2003). Why companies use open-market repurchases: A managerial perspective. Quarterly Review of Economics and Finance, 43(3), 483-504.
Brealey, R. A, Myers, S. C & Marcus A. J. (2007). Fundamentals of corporate finance. McGraw-Hill, Irwin.
Brigham, E. F. & Ehrhardt, M. C. (1999), "Financial management: theory and practice (11th ed.). South-Western Mason, Ohio.
Buferna, F., Bangassa, K. & Hodgkinson, L. (2005). Determinants of capital structure: Evidence from Libya. Research Paper Series.
Chen, H. (2020, December). The Impact of Financial Leverage on Firm Performance–Based on the Moderating Role of Operating Leverage. In Fifth International Conference on Economic and Business Management (FEBM 2020) (pp. 464-473). Atlantis Press.
Chesang, D. (2017). Effect of financial leverage on profitability of listed agricultural firms at the Nairobi securities exchange (Doctoral dissertation, Kisii University).
Cyril, U. M. (2016). The effect of capital structure on the financial performance of Nigerian quoted conglomerates. European Journal of accounting, Auditing and Finance research, 4(6), 61-69. http://www.eajournals.org/
Dalci, I. (2018). Impact of financial leverage on profitability of listed manufacturing firms in China. Pacific Accounting Review, 30(4), 410–432.
Dang, V. A. (2013). Testing capital structure theories using error correction models: evidence from the UK, France and Germany. Applied Economics, 45(2), 171–190.
De Jong, A., Verbeek, M., &Verwijmeren, P. (2011). Firms’ debt–equity decisions when the static trade-off theory and the pecking order theory disagree. Journal of Banking & Finance, 35(5), 1303-1314.
Eckbo, B. E. (1986). Valuation effects of corporate debt offerings. Journal of Financial Economics, 15(1), 119-151.
Enekwe, C. I., Agu, C. I., &Eziedo, K. N. (2014). The effect of financial leverage on financial performance: Evidence of quoted pharmaceutical companies in Nigeria. Journal of economics and finance, 5(3), 17-25. https://doi.org/10.9790/5933-0531725
Evgeny, I. (2015). The impact of financial leverage on firm performance: Evidence from Russia. Journal of Corporate Finance Research, 9(2), 24–36.
Farrington, T. & Abrams, J. (2002). The evolving capital structure of microfinance institutions. Micro-enterprise Development Review, Washington D.C. (Inter-American Development Bank Working Paper)
Frank, M. Z., & Goyal, V. K. (2003). Testing the pecking order theory of capital structure. Journal of Financial Economics, 67(2), 217–248.
Fu-sheng, W. & Nan-hui, W. (2014). Empirical research on the influence of capital structure on profitability based on data from the pharmaceutical industry. International Conference on Management Science & Engineering, pp. 1393–1399.
García-Gómez, C. D., Bilgin, M. H., Demir, E., &Díez-Esteban, J. M. (2021). Leverage and performance: The case of the US hospitality industry. Quantitative Finance and Economics, 5(2), 228-246.
Grau, A. & Reig, A. (2021). Operating leverage and profitability of SMEs: Agri-food Industry in Europe. Small Business Economics, 57(1), 221–242.
Guo, H., Legesse, T. S., Tang, J., & Wu, Z. (2021). Financial leverage and firm efficiency: The mediating role of cash holding. Applied Economics, 53(18), 2108-2124.
Hasan, M. B., Ahsan, A. M., Rahaman, M. A., & Alam, M. N. (2014). Influence of capital structure on firm performance: Evidence from Bangladesh. International Journal of Business and Management, 9(5), 184.
Helwege, J, & Liang, N. (1996) Is there pecking order? Evidence from a Panel of IPO Firms. Journal of Financial Economics 40, 429 – 440.
Hovakimian, A., Opler, T., & Titman, S. (2001), The debt-equity Choice. Journal of financial economics and Quantitative Analysis, 36, 1-24.
Iqbal, U. & Usman, M. (2018). Impact of financial leverage on firm performance. SEISENSE Journal of Management, 1(2), 70–78.
Jain, B. & Kini, O. (1994). The post-issue operating performance of IPO firms. Journal of Finance, 49(5), 1699-1726.
Jensen, M. & Meckling, W. (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 3, 305-60.
Leland, H. E. & Pyle, D. H. (1977). Information asymmetries, financial structure, and financial intermediation. Journal of Finance, 32(2), 371-378.
Loughran, T. & Ritter, J. R. (1997). The operating performance of firms conducting seasoned equity offerings. Journal of Finance, 52(5), 1823-1850.
Manawaduge, A., Zoysa, A. D., Chowdhury, K., &Chandarakumara, A. (2011). Capital structure and firm performance in emerging economies: An empirical analysis of Sri Lankan firms. Corporate Ownership & Control, 8(4), 253-263.
McGuigan J. R, Kretlow W. J., & Moyer C. R. (2009). Contemporary corporate finance (11th Ed.). South Western Cengage Learning.
Mikkelson, W. H., Partch, M. M. & Shah, K. (1997). Ownership and operating performance of companies that go public. Journal of Financial Economics, 44(2), 281-307.
Modigliani, F., & Miller, M. H. (1963). Corporate income taxes and the cost of capital: a correction. The American economic review, 53(3), 433-443. https://www.jstor.org/stable/1809167
Myers, S. (1977). Determinants of corporate borrowing. Journal of Financial Economics, 5: 147-176.
Myers, S. (1984). The capital structure puzzle. Journal of Finance, 39(3), 575-592.
Myers, S. C., & Majluf, N. (1984). Corporate financing and investment decisions when firms have information investors do not have. Journal of Financial Economics, 187-221.
Myers, S.C. (2002). Capital structure. Journal of Economic Perspectives, 15(2), 81–102.
Nwanne, I. O., & Ivie, G. (2017). Effect of financial leverage on firm’s performance: A study of Nigerian banks (2006-2015). International Journal of Recent Scientific Research, 8(7), 18554-18564. http://dx.doi.org/10.24327/ijrsr.2017.0807.0530
Nwaolisa, E. F. &Chijindu, A. A. (2016). The effect of financial structure on the performance of Nigeria consumer goods firms. Journal of Scientific Research and Reports, 10(4), 1- 15.
Pandey I. M. (2010). Financial management (11th Ed.). Vikas Publishing House PVT limited.
Pouraghajan, A., Malekian, E., Emamgholipour, M., Lotfollahpour, V., & Bagheri, M. M. (2012). The relationship between capital structure and firm performance evaluation measures: Evidence from the Tehran Stock Exchange. International Journal of Business and Commerce, 1(9), 166–181.
Prempeh, K. B., & Nsiah A, E. (2016). The Effect of Debt Policy on Firms Performance: Empirical Evidence from Listed Manufacturing Companies on The Ghana Stock Exchange. https://mpra.ub.uni-muenchen.de/75200/
Rahman, M.M., Saima, F.N. & Jahan, K. (2020). The impact of financial leverage on firm’s profitability: An empirical evidence from listed textile firms of Bangladesh. Journal of Business Economics and Environmental Studies, 10(2), 23–31.
Robert, G. T. (2012). An Introduction to startup financing and a new approach to attractingcapital resources. White Paper, retrieved fromhttp://www.startupfactory.co/pdf/SUF_capital_fin.pdf
Ryan, B. (2007). Corporate finance and valuation.Cengage Learning EMEA.
Shah, K. (1994). The nature of information conveyed by pure capital structure changes. Journal of Financial Economics, 36(2), 89-126.
Singh, A.K., & Bansal, P. (2016). Impact of financial leverage on firm’s performance and valuation: A panel data analysis. Indian Journal of Accounting, 48(2), 73–80.
Titman, S and Wessels R. (1988). The determinants of capital structure choice. Journal of Finance, 43(1), 1-19.
Watson D. & Head A. (2007). Corporate finance, principles and practices (4th Ed.). Pearson Education Limited.
Welch, I. (2009). Corporate finance: An introduction. Prentice Hall.
Abubakar, A. (2015). Relationship between financial leverage and financial performance of deposit money banks in Nigeria. International Journal of Economics, Commerce and Management, 3(10), 759-778. https://www.researchgate.net/deref/http%3A%2F%2Fijecm.co.uk%2F
Abubakar, A. (2016). Financial leverage and financial performance: Evidence from the health care sector of the Nigerian stock exchange from 2005-2014. ADSU Journal of, 45-64.
Abubakar, A. (2017). Effects of financial leverage on financial performance of non-financial quoted companies in Nigeria. FUDMA Economic and Development Review (FEDER), 1(1), 37-53. https://dj.univ-danubius.ro/index.php/AUDOE/article/view/1383
Adenugba, A. A., Ige, A. A., &Kesinro, O. R. (2016). Financial leverage and firms’ value: A study of selected firms in Nigeria. European Journal of Research and Reflection in Management Sciences, 4(1), 14-32.
Ahmad, N., Salman, A., & Shamsi, A. (2015). Impact of financial leverage on firms’ profitability: An investigation from cement sector of Pakistan. Research Journal of Finance and Accounting, 6(7), 2222-1697.
Ahmed, F., Awais, I., & Kashif, M. (2018). Financial leverage and firms’ performance: Empirical evidence from KSE-100 Index. Etikonomi, 17(1), 45-56.
Al-Tally, H. A. (2014). An investigation of the effect of financial leverage on firm financial performance in Saudi Arabia's public listed companies (Doctoral dissertation, Victoria University).
Antweiler, W. & Frank, M. Z. (2006). Do U.S. Stock Markets Typically Overreact to Corporate News Stories? Working Paper, University of British Columbia and University of Minnesota.
Baker, K. H., Powell, G. E. & Veit, E. T. (2003). Why companies use open-market repurchases: A managerial perspective. Quarterly Review of Economics and Finance, 43(3), 483-504.
Brealey, R. A, Myers, S. C & Marcus A. J. (2007). Fundamentals of corporate finance. McGraw-Hill, Irwin.
Brigham, E. F. & Ehrhardt, M. C. (1999), "Financial management: theory and practice (11th ed.). South-Western Mason, Ohio.
Buferna, F., Bangassa, K. & Hodgkinson, L. (2005). Determinants of capital structure: Evidence from Libya. Research Paper Series.
Chen, H. (2020, December). The Impact of Financial Leverage on Firm Performance–Based on the Moderating Role of Operating Leverage. In Fifth International Conference on Economic and Business Management (FEBM 2020) (pp. 464-473). Atlantis Press.
Chesang, D. (2017). Effect of financial leverage on profitability of listed agricultural firms at the Nairobi securities exchange (Doctoral dissertation, Kisii University).
Cyril, U. M. (2016). The effect of capital structure on the financial performance of Nigerian quoted conglomerates. European Journal of accounting, Auditing and Finance research, 4(6), 61-69. http://www.eajournals.org/
Dalci, I. (2018). Impact of financial leverage on profitability of listed manufacturing firms in China. Pacific Accounting Review, 30(4), 410–432.
Dang, V. A. (2013). Testing capital structure theories using error correction models: evidence from the UK, France and Germany. Applied Economics, 45(2), 171–190.
De Jong, A., Verbeek, M., &Verwijmeren, P. (2011). Firms’ debt–equity decisions when the static trade-off theory and the pecking order theory disagree. Journal of Banking & Finance, 35(5), 1303-1314.
Eckbo, B. E. (1986). Valuation effects of corporate debt offerings. Journal of Financial Economics, 15(1), 119-151.
Enekwe, C. I., Agu, C. I., &Eziedo, K. N. (2014). The effect of financial leverage on financial performance: Evidence of quoted pharmaceutical companies in Nigeria. Journal of economics and finance, 5(3), 17-25. https://doi.org/10.9790/5933-0531725
Evgeny, I. (2015). The impact of financial leverage on firm performance: Evidence from Russia. Journal of Corporate Finance Research, 9(2), 24–36.
Farrington, T. & Abrams, J. (2002). The evolving capital structure of microfinance institutions. Micro-enterprise Development Review, Washington D.C. (Inter-American Development Bank Working Paper)
Frank, M. Z., & Goyal, V. K. (2003). Testing the pecking order theory of capital structure. Journal of Financial Economics, 67(2), 217–248.
Fu-sheng, W. & Nan-hui, W. (2014). Empirical research on the influence of capital structure on profitability based on data from the pharmaceutical industry. International Conference on Management Science & Engineering, pp. 1393–1399.
García-Gómez, C. D., Bilgin, M. H., Demir, E., &Díez-Esteban, J. M. (2021). Leverage and performance: The case of the US hospitality industry. Quantitative Finance and Economics, 5(2), 228-246.
Grau, A. & Reig, A. (2021). Operating leverage and profitability of SMEs: Agri-food Industry in Europe. Small Business Economics, 57(1), 221–242.
Guo, H., Legesse, T. S., Tang, J., & Wu, Z. (2021). Financial leverage and firm efficiency: The mediating role of cash holding. Applied Economics, 53(18), 2108-2124.
Hasan, M. B., Ahsan, A. M., Rahaman, M. A., & Alam, M. N. (2014). Influence of capital structure on firm performance: Evidence from Bangladesh. International Journal of Business and Management, 9(5), 184.
Helwege, J, & Liang, N. (1996) Is there pecking order? Evidence from a Panel of IPO Firms. Journal of Financial Economics 40, 429 – 440.
Hovakimian, A., Opler, T., & Titman, S. (2001), The debt-equity Choice. Journal of financial economics and Quantitative Analysis, 36, 1-24.
Iqbal, U. & Usman, M. (2018). Impact of financial leverage on firm performance. SEISENSE Journal of Management, 1(2), 70–78.
Jain, B. & Kini, O. (1994). The post-issue operating performance of IPO firms. Journal of Finance, 49(5), 1699-1726.
Jensen, M. & Meckling, W. (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 3, 305-60.
Leland, H. E. & Pyle, D. H. (1977). Information asymmetries, financial structure, and financial intermediation. Journal of Finance, 32(2), 371-378.
Loughran, T. & Ritter, J. R. (1997). The operating performance of firms conducting seasoned equity offerings. Journal of Finance, 52(5), 1823-1850.
Manawaduge, A., Zoysa, A. D., Chowdhury, K., &Chandarakumara, A. (2011). Capital structure and firm performance in emerging economies: An empirical analysis of Sri Lankan firms. Corporate Ownership & Control, 8(4), 253-263.
McGuigan J. R, Kretlow W. J., & Moyer C. R. (2009). Contemporary corporate finance (11th Ed.). South Western Cengage Learning.
Mikkelson, W. H., Partch, M. M. & Shah, K. (1997). Ownership and operating performance of companies that go public. Journal of Financial Economics, 44(2), 281-307.
Modigliani, F., & Miller, M. H. (1963). Corporate income taxes and the cost of capital: a correction. The American economic review, 53(3), 433-443. https://www.jstor.org/stable/1809167
Myers, S. (1977). Determinants of corporate borrowing. Journal of Financial Economics, 5: 147-176.
Myers, S. (1984). The capital structure puzzle. Journal of Finance, 39(3), 575-592.
Myers, S. C., & Majluf, N. (1984). Corporate financing and investment decisions when firms have information investors do not have. Journal of Financial Economics, 187-221.
Myers, S.C. (2002). Capital structure. Journal of Economic Perspectives, 15(2), 81–102.
Nwanne, I. O., & Ivie, G. (2017). Effect of financial leverage on firm’s performance: A study of Nigerian banks (2006-2015). International Journal of Recent Scientific Research, 8(7), 18554-18564. http://dx.doi.org/10.24327/ijrsr.2017.0807.0530
Nwaolisa, E. F. &Chijindu, A. A. (2016). The effect of financial structure on the performance of Nigeria consumer goods firms. Journal of Scientific Research and Reports, 10(4), 1- 15.
Pandey I. M. (2010). Financial management (11th Ed.). Vikas Publishing House PVT limited.
Pouraghajan, A., Malekian, E., Emamgholipour, M., Lotfollahpour, V., & Bagheri, M. M. (2012). The relationship between capital structure and firm performance evaluation measures: Evidence from the Tehran Stock Exchange. International Journal of Business and Commerce, 1(9), 166–181.
Prempeh, K. B., & Nsiah A, E. (2016). The Effect of Debt Policy on Firms Performance: Empirical Evidence from Listed Manufacturing Companies on The Ghana Stock Exchange. https://mpra.ub.uni-muenchen.de/75200/
Rahman, M.M., Saima, F.N. & Jahan, K. (2020). The impact of financial leverage on firm’s profitability: An empirical evidence from listed textile firms of Bangladesh. Journal of Business Economics and Environmental Studies, 10(2), 23–31.
Robert, G. T. (2012). An Introduction to startup financing and a new approach to attractingcapital resources. White Paper, retrieved fromhttp://www.startupfactory.co/pdf/SUF_capital_fin.pdf
Ryan, B. (2007). Corporate finance and valuation.Cengage Learning EMEA.
Shah, K. (1994). The nature of information conveyed by pure capital structure changes. Journal of Financial Economics, 36(2), 89-126.
Singh, A.K., & Bansal, P. (2016). Impact of financial leverage on firm’s performance and valuation: A panel data analysis. Indian Journal of Accounting, 48(2), 73–80.
Titman, S and Wessels R. (1988). The determinants of capital structure choice. Journal of Finance, 43(1), 1-19.
Watson D. & Head A. (2007). Corporate finance, principles and practices (4th Ed.). Pearson Education Limited.
Welch, I. (2009). Corporate finance: An introduction. Prentice Hall.
Published
2025-04-05
How to Cite
SUNDAY, D. D., & WOBO, H. O. (2025). Funding Structure and Performance of Quoted Manufacturing Firms in Nigeria. GPH-International Journal of Social Science and Humanities Research, 8(03), 30-47. https://doi.org/10.5281/zenodo.15152413
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Firozpur Jhirka, Haryana, India
