Capital Structure Analysis

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Capital structure is one of the major financing decisions affecting the market value of the firm. Capital structure is the combination of the different sources of funds, debt and equity, a firm uses to finance its economic operations and growth. Capital structure decision is concerned with the issue of whether changes in financing arrangement will influence the value of the firm. In recent times, poor capital structure decision resulting to huge debt without commensurate investment in assets has been identified as a major factor that continue to plunge a number of firms into bankruptcy (Ehikioya, 2009). Financing managers have the responsibility to set optimal capital structure that would improve on the value of the firm for the overall interest …show more content…
Similar to the observed firm characteristics, the environment for different reasons is equally an important factor that influences capital structure decisions. According to Antoniou et al, (2002), the legal and tax environments as well as economic system and technological capabilities exert some degree of influence on firm’s capital structure. This argument is supported by De Jong et al. (2008) who opined that both microeconomic conditions and the firms’ specific characteristics affect firms’ financing decisions. In Nigeria, like in some other countries, for firms to expand business operations or evolve new products, requires the use of equity or debt (or a combination of the two sources) which comes in the form of bond or long term notes payable on maturity. Nigeria managers are continually inundated with the choice of capital structure that would increase the value of the firm. This challenge is further exacerbated by country specific factors like institutional and governance structures, legal environment, macroeconomic factors and financial system development factors among many …show more content…
Capital structure is an important strategy at the disposal of managers to maximize the value of the firm. It is significant to understand how firms in Nigeria set their optimal capital structure that will improve firm performance. Also, it is instructing to know how debt impact on firms’ performance in Nigeria. Thus, the main thrust of this study is to empirically examine the impact of capital structure on the performance of firms in Nigeria. In other words, this study aims to examine the correlation between corporate capital structure decisions and firm performance in Nigeria. This study will assist managers to understand how the choice of capital structure impact on the performance of firms. Also, the study will guide managers on how to set optimal capital structure that will not only improve on performance but will serve the interest of all the
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