The Effect of Capital Structure Choice on the Performance of Corporate Organizations: A Case of Quoted Agro-Based Firms in Nigeria

Authors

Bassey, Nsikan Edet Akwa Ibom State University, Ikot Akpaden, Mkpat Enin, Akwa Ibom State, Nigeria Author
Ukpe, Offiong Uma Akwa Ibom State University, Ikot Akpaden, Mkpat Enin, Akwa Ibom State, Nigeria Author
Solomon, Ubong Udo Hutton School of Business, University of the Cumberlands, Williamsburg, Kentucky, United States Author

Agro-based firms, Performance and capital structure

The study analyzed the effect of capital structure choice on the performance of agro-based firms in Nigeria. Agro-

based performance was measured using Return on Equity (ROE) and Return on Asset (ROA). Secondary data were

collected from 20 quoted firms for the period 2007-2013 and analyzed using the Ordinary Least Square (OLS)

regression technique. Data were first examined for stationarity using the Augmented Dickey Fuller unit root test.

Result revealed that all the variables were stationary at levels except Return on equity (ROE), long-term debt (LTD)

and Retained earnings (RE) that were later stationary at first difference. The OLS result revealed that the major

positive determinants of performance were long-term debt, equity and retained earnings. Among the variables that

impacted negatively on agro-based performance were total debts and short-term debts finances. Hence, to enhance

agro-based performance, agro financial managers should avoid excessive debt, rather, in attempting to raise debt

should employ moderate long-term debt that has long repayment period with less repayment pressure. They should

also strive to retain part of their profit while ensuring high use of equity capital as part of their long-term financing

decision.