CAPITAL STRUCTURE AND FIRMS PERFORMANCE IN NIGERIA: AN IMPACT ASSESSMENT
TABLE OF CONTENT
CHAPTER ONE: INTRODUCTION
1.1   BACKGROUND TO THE STUDY    
1.2    STATEMENT OF THE RESEARCH PROBLEM
1.3    RESEARCH QUESTIONS
1.4    OBJECTIVES OF THE STUDY
1.5    HYPOTHESES OF THE STUDY
1.6    RELEVANCE OF THE STUDY
1.7    SCOPE OF THE STUDY
1.8    LIMITATIONS OF STUDY
CHAPTER TWO: LITERATURE REVIEW
2.1    INTRODUCTION
2.2    CAPITAL STRUCTURE RELEVANCE THEORY
2.2.1    The NET income approach
2.2.2    The Traditional Approach
2.3    CAPITAL STRUCTURE IRRELEVANCE
2.3.1    NET Operating Income Approach (NOI)
2.3.2    Modigliani – Miller Theory
2.4    CAPITAL STRUCTURE AND CORPORATE TAX
2.4.1    Miller’s Model with Corporate and Personal Tax
2.5    AGENCY COST THEORY
2.6     PECKING ORDER THEORY
2.7    DETERMINANTS OF CAPITAL STRUCTURE
2.7.1    Taxes
2.7.2     Assets
2.7.3      Debt and Non Debt Tax Shield
2.7.4    Financial Slack
2.7.5 Loan Covenants
2.7.6    Growth Opportunity
2.8    THE EMPIRICAL LITERATURE
CHAPTER THREE: METHODOLOGY OF THE STUDY
3.1    INTRODUCTION
3.2    MODEL SPECIFICATION
3.3    SOURCES OF DATA
3.4    METHOD OF DATA ANALYSIS
CHAPTER FOUR:PRESENTATION AND ANALYSIS OF DATA
4.1    INTRODUCTIONS
4.2    CORRELATION ANALYSIS
4.4    REGRESSION ANALYSIS/RESULTS  
Tables
Table 4.2: Pairwise Correlations Matrix
Table 4.2: Firm’sCapital Structure and ROE in Nigeria OLS
CHAPTER FIVE: SUMMARY OF FINDINGS, RECOMMENDATIONS AND CONCLUSION
5.1     SUMMARY OF FINDINGS
5.2     RECOMMENDATIONS
5.3     CONCLUSION
BIBLIOGRAPHY
          APPENDICES
CHAPTER ONE
INTRODUCTION
1.1   BACKGROUND TO THE STUDY    
Financing firm’s investment is usually done by equity, increasing creditors’ claims or through a combination of debt and equity. This various means of financing and many more represent the financial structure of a firm (Pandey: 2005). It is an important factor in every firm’s managerial decision, as it influences the equity holders’ returns and risk which in turn affect the cost of capital and market price of the stock. These various means of financing and their respective cost of capital and benefit necessitated the need for financing decision which centers on the issue of determining the appropriate optimal capital structure of a firm.
    Capital structure decision is concerned with the ratio of debt to equity that will maximize the returns of the firm. Debt as a source of finance has several advantages. First interest paid on it is tax deductible, which lowers the effective cost of debt. Secondly, debt holders get a fixed return, so stockholders do not have to share their profits if business is extremely successful. Debt also has disadvantages: the higher a company’s debt ratio the higher its interest rate will be. Again, if a firm falls on hard times, and operating income is not sufficient to cover interest charges, stockholders will have to cover the shortfall, and if they cannot, bankruptcy will result (Eugene, 1995).
    The modern theory of capital structure began with the celebrated paper of Modigliani and Miller (1958). They pointed the direction that such theory must take by showing under what conditions capital structure is irrelevant (Milton and Arthur 1991). In their article, they showed that in a frictionless world the level of Debt in the capital structure is unrelated to the value of the firm, but in the real world, where interest on debt are tax deductable, Debt level is positively related to the value of the firm. Also, arguments have ensued between those who believe that there is an optimum capital structure and those who do not believe; and there is yet no resolution of the conflict, while traditional approach asserts the existence of optimum capital structure, the proponents of M-M approach argueotherwise. It is hoped that with the outcome of this study, an optimal capital structure with respect to firm’s performance relative to the Nigeria context will evolve.
1.2    STATEMENT OF THE RESEARCH PROBLEM
    One of the central issues in both the theory and practice of financial management is the problem of determining the relationship between capital structure and the value of the firm. There have been different and conflicting theories on the relationship between capital structure and the value of the firm. This issue has been a contentious area in the study of finance. Thus different schools of thoughts have emerged with their theoretical underpinnings and appeals.
    In Nigeria, the Capital market development, Banking sector reforms and the array of investment opportunities among listed firms have encouraged, facilitated and made frequent loan acquisition and the issue of financial securities as sources of finance to companies. These developments attracted the attention of both Nigerians and foreign investors into the new windows of investment, cumulating into oversubscription of issues and refunds to investors.
    In view of the risky nature of these sources of finance on the part of firms, there is need to weigh the impact of capital structure on the performance of the firm when deciding on their choice of financing as this will surely assist firms in Nigeria in their choice of investment and capital structure decision.
1.3    RESEARCH QUESTIONS
    The study seeks to provide answers to the following research questions:
What is the relationship between leverage and firm’s performance in Nigeria?
What is the relationship between equity ratio and firm’s performance in Nigeria?
Do taxes influence firm’s performance in Nigeria?
Is there any significant relationship between firm size and firm’s performance in Nigeria?
Does market turnover affect firm’s performance in Nigeria?
What is the relationship betweeninterest rate and firm’s performance in Nigeria?
1.4    OBJECTIVES OF THE STUDY
    The objectives of the study are to:
Determine the relationship between leverage and firm’s performance in Nigeria.
Examine the impact of equity ratio on firm’s performance in Nigeria.
Assess the relationship between taxes and firm’s performance in Nigeria.
Determine the relationship between firm size and firm’s performance in Nigeria.
Determine the relationship between market turnover (proxied by the ratio of market capitalization to     GDP) and firm’s performance in Nigeria.
Examine the impact of interest rate on firm’s performance in Nigeria.
1.5    HYPOTHESES OF THE STUDY
    The followings are the hypotheses of the study:
There is no significant relationship between leverage and firm’s performance in Nigeria.
Equity ratio does not have any significant impact on firm’s performance in Nigeria.
There is no significant relationship between taxes and firm’s performance in Nigeria.
There is no significant relationship between firm size and firm’s performance in Nigeria.
Market turnover does not have any significantrelationship with firm’s performance in Nigeria.
Interest rate has no significant impact on firm’s performance in Nigeria.
1.6    RELEVANCE OF THE STUDY
    This study will assist firms and managers of firms in formulating profitable financing policy. To the potential debt holders and trade creditors, it will provide useful insight to the interpretation of capital structure of firms where they are stakeholders. Future researchers shall not be left out, as far as the relevance of this study is concerned. Potential equity holders will also benefit from this research, as they would be informed on the implications of different level of leverage, on expected returns. This study, would serve also as a reference point for future researchers who wish to carry out further study on the topic.
1.7    SCOPE OF THE STUDY
    It is a Nigeria-specific study covering a period of 14 years (2001 – 2014). Relevant data are sourced from the Central Bank of Nigeria Statistical Bulletin (2015). A sample of Four (4) manufacturing firms listed on the Nigerian stock exchange was used.
1.8    LIMITATIONS OF STUDY
Some of the noticeable limitations of the study are:
Accessing Data on the true borrowing profile of the firms in Nigeria seems to be difficult as some firms may intend to present a sound annual financial statement.
    There is also the problem of the use of secondary data which in some cases are not accurate.
    With respect to the method of data analysis, it true that no best method of data analysis exist in the world because each one has its own limitation. Hence, the ordinary least square method (OLS) employed in this study may not be sophisticated enough to give an all-embracing analysis but efforts will be made to ensure that errors are minimize and the results obtained are reliable, verifiable and acceptable for policy implementation.