Effect of Capital Structure on Corporate Performance: Evidence from Agricultural Firms Quoted on the Nigeria Stock Exchange (2007 – 2018)

Abstract

This study presented an analysis of the effect of capital structure on the corporate performance of agricultural firms quoted on the Nigeria Stock Exchange (NSE). There is no consensus on the effect of capital structure on corporate performance. Specifically, the effect of total debt to total assets, total debt to total equity, short-term debt to total assets respectively on return on assets, return on equity and net profit margin were ascertained. Secondary data for the period 2007 to 2018 were sourced from the annual reports of all the firms quoted on the Nigerian Stock Exchange (NSE). The Panel Ordinary Least Square (POLS) and the Granger Causality test were the techniques employed in estimating the models. The result of the analysis revealed that total debt to total assets, total debt to total equity, short-term debt to total assets have a significant effect on return on assets, return on equity, and net profit margin of agricultural firms in Nigeria. Firms in the agricultural sector are encouraged to fund their operations with more equity capital as debt financing negatively influences shareholder wealth. Management of agricultural firms should consider the use of more short-term debt relative to equity capital in preference to long-term debt in their financing mix.