EFFECT OF FINANCIAL STRUCTURE ON FINANCIAL PERFORMANCE OF FIRMS IN NIGERIA

Abstract

The study examined effect of financial structure (FS) on financial performance (FP) of listed companies in the Nigeria Exchange Group (NGX). Based on judgmental sampling technique, 10 listed companies were selected as sample of the study. Data for FS (long term debt ratio (LTDR), total debt ratio (TDR), debt to equity ratio (DTER), and short term ratio(STDR)) and FP (return on assets (ROA)) were gleaned from the annual reports and financial statements of the sampled companies for a period of 10 years covering 2011 to 2020. The data were analyzed using descriptive statistics, the panel unit root test, the Pedronic cointegration test, correlation matrices, and multiple regression analysis with the aid of the E-Views 9.0 computer packages.

The results of the study showed that LTDR has a positive and inconsiderable effect on FP surrogated as ROA) of the listed Oil and Gas Firms (OGFs) and positive and considerable effects on ROA of the listed Consumer Goods Firms (CGFs); TDR has a negative and inconsiderable effect on ROA of the listed Oil & Gas and Consumer Goods Sector Firms (OGCGSFs); DTER has a positive and inconsiderable effect on ROA of the listed OGFs and positive and considerable effects on ROA of the listed CGFs and STDR has a positive considerable effect on FP of the listed OGFs and a negative considerable effects CGFs. The study found that FS affects the FP of the listed OGCGSFs in Nigeria in diverse ways. Thus, the report advises applying STDR in OGCGSFs to short-term business ideas to enhance their significance in FS decisions, which affects ROA. These firms need greater equity capital.