The Impact of Capital Structure on Corporate Performance in Nigeria: A Quantitative Study of Consumer Goods Sector

Abstract

This study examined the impact of capital structure on corporate performance in Nigeria with special focus on consumer goods firm sector of the economy. Multiple regression of Ordinary Least Square (OLS) analytical technique was used to analyse the data. The results from the study showed a negative and insignificant impact of capital structure on corporate performance of the consumer goods firm sector of Nigeria. That long-term debt ratio to total asset had a negative and insignificant impact on returns on assets, while total debt ratio to equity also had a negative and insignificant impact on returns on assets. The study, therefore, concluded that capital structure is not a major determinant of firm performance. Hence, the study recommends that managers should be careful while using debt as a source of finance since a negative impact exist between the capital structure and corporate firm’s performance. Also, that corporate firms should try to finance their activities with retained earnings and use debt as a last option as this is consistent with the pecking order theory. This implies that, the study strongly recommends that corporate firms should use more of equity than debt in financing their business activities, this is because in spite of the fact that the value of a business can be enhanced with debt capital, it gets to a point that it becomes detrimental (negative) or unfavourable to the business.