Journal of Emerging Trends in Economics and Management Sciences: Home

Abstract:
This paper examines an optimal capital structure to maximize the performance of the selected firms under the same systematic risk. We investigate the relation between return on equity (ROE) and the capital structure for a sample of 10 firms from 2000 to 2009. We explore the empirical implications that there exists an optimal capital structure under trade-off theory and the optimal capital structure of manufacturing firms. At the same time, find the optimal capital structure and their concerning maximum value of ROE. The target ratio may change over time as the firm's performance and environments change. When firms adjust their capital structure, they tend to move toward an optimal debt ratio consistent with the historical financial behaviors of firms. We also find the firm's performance is a quadratic function of debt ratio. In this paper, there is further evidence on the relation between the distribution of debt ratio and corporate performance. This text summarized the main conclusion that the manufacturing industry's capital structure in Nigeria is consistent with trade-off theory, and the results are consistent with the hypothesis that the corporate performance is a nonlinear function of the capital structure.

Keywords: tradeoff theory, Nigerian stock exchange, capital structure, roe, firm�s Performance.

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