Effect of Capital Reconstruction on the Financial Performance of Listed Consumer Goods Firms in Nigeria
Abstract
This study examined the effect of capital reconstruction on the financial performance of listed consumer goods firms in Nigeria. The study employed an ex-post facto research design, utilizing secondary data from the annual reports of selected firms from 2012 to 2023. Financial performance was measured using Return on Assets (ROA), while capital reconstruction was assessed through Debt-to-Capital Ratio (DCR), Debt-to-Equity Ratio (DER), and Retained Earnings Growth Rate (REGR). Panel regression analysis was conducted to determine the effect of the independent variables on financial performance. The findings revealed that DCR had a significant negative effect on ROA, indicating that excessive debt reduced firm profitability. However, DER and REGR had no significant effect on ROA, suggesting that the proportion of debt to equity and the growth in retained earnings did not directly influence financial performance. The study's results partially aligned with the Trade-Off Theory, as high debt levels negatively impacted performance, while the findings on Pecking Order Theory were mixed, as retained earnings did not significantly enhance financial performance. Based on these findings, the study recommended that firms should carefully manage their debt-to-capital ratio to avoid excessive financial burden while making strategic use of equity and retained earnings for sustainable growth.
Keywords
Capital ReconstructionFinancial PerformanceConsumer Goods FirmsDebt-to-
References
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