ADMINISTRATION

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Browsing ADMINISTRATION by Author "ABAYOMI"

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    THE EFFECT OF CAPITAL STRUCTURE ON PERFORMANCE
    (1997-03) SAMUEL, BARNABAS,; ABAYOMI
    ABSTRACT This thesis evaluates the impact of capital structure on performance evaluation of firms using selected quoted companies in Nigeria. A lot of literature has been written on this subject especially in advanced economies such as USA. The results of the empirical studies in advanced economies differ. Some from their findings reveal that except for tax advantage debt, financing does not have any advantage. While others from thesis contended, that debt has greater advantage that its tax advantages. The research conducted was to reveal the true situation in Nigeria, a model of developing economy. Two groups are considered; the conglomerates and drinks groups and Building Materials group, using two stage least square regression, Model; values of firms being the dependent variable and computed earning , size, growth and debt serve as the instrumental variable. The regression co-efficient of the debt variable unlike the case of Miller and Modigliani was significantly greater than zero and thus it was subsequently introduced in the instrumental/independent variable. The regression coefficient for the debt variable . shows the value greater than zero. From this, it can be concluded that the advantage of debt is higher than the tax advantage. The coefficient of debt variable for the four years both the second stage estimate and direct estimate is higher than the corporation income tax rate (1990-1992; 40% and 1994 35%) the result obtained gives more credence to the fact the debt has greater advantage than its tax advantage. The research work reveals that shareholder wealth increases with debt through the ranges observed, though there are practical limitations to this. It was discovered that, in practice, that firms operate within a particular combination of debt'and equity they considered optimum. It is observed that apart from the capital structure, there are other quantitative and non-quantitative factors that influence the price of a firm share in the market; such as management epitude, economic situations, political instability etc.