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Estimated Effect of Capital Structure on the Profitability of Quoted Firms in Nigeria: A Panel Data Study

Zukbee Sira Austin Ph.D

Abstract

This study examined the effect of capital structure on the profitability of quoted firms in Nigeria. Cross sectional data were sourced from thirty-two quoted firm across different sectors. Profitability was proxied by return on equity while capital structure was measured by debt capital, equity capital and debt equity ratio. Fixed effect estimation model was applied for the data analysis through E-Views 9.0 statistical package. The study found that 41.6 percent variation in return on equity of the quoted firms was traced to variation in capital structure variables of the firms. The analysis of coefficients revealed that debt capital and equity capital have positive effect on the return on equity of the quoted firms while debt equity ratio have negative effect on return on equity. The study recommends the use of debt in financing in the operation of the quoted companies. There should proper mix of debt and equity capital of the quoted firms and capital structure of any kind should be structured to accommodate equity and debt holders so that the risk ingredient that most concerns are vulnerable to under a highly geared scenario one way or the other would have been considered.

Keywords

Capital StructureProfitabilityDebt CapitalEquity CapitalDebt Equity Ratio

References

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