Journal of Emerging Trends in Economics and Management Sciences: Home

Article Title:
Capital Structure-Firm Performance Relationship: Empirical Evidence from African Countries
by Olaniyan S. Olajide, Soetan R. Funmi, Simon- Oke O.Olayemi

Abstract:
Extensive studies on the relationship between capital structure and firm performance had been carried out in Nigeria with diverse Techniques of Analysis; but relatively few studies of this nature were reviewed and conducted in Sub-Saharan Africa. Hence, the need for the study. This study explores literature as well as the Generalized Method of Moments (GMM) for its analysis. From the review of literature beyond Nigeria, it was revealed that both positive and negative relationship exists between capital structure and firms? performance across African countries, with relatively high Agency costs among the firms. The results of the Generalized Method of Moments using data from Nigerian Stock Exchange, Fact Book between 1996 and 2014 on the Return on Assets (ROA), Returns on Equity(ROE), Earnings Per Share (EPS) and Tobin?s Q as measures of firm performance; and Debt Ratio (DR) as a measure of capital structure also showed that capital structure has a negative and significant relationship with firms? performance in Nigeria. The study concluded that the agency costs among African firms are relatively high which is usually responsible for their negative performances; and also a mixed relationship was identified between Capital Structure and firms? performance across African countries

Keywords: capital structure; agency theory; firm performance; and generalized methods of moment (GMM)

Download full paper