Nigerian Journal of Banking and Financial Issues (NJBFI)

CAPITAL STRUCTURE AND FIRM PERFORMANCE OF LISTED MANUFACTURING COMPANIES IN NIGERIA: AN EMPIRICAL INVESTIGATION

Abstract

This study examines the relationship between capital structure decisions and firm performance among listed manufacturing companies in Nigeria, utilizing panel data spanning 2010–2024. From a total population of 85 manufacturing firms listed on the Nigerian Exchange Limited (NGX) as of December 2024, a purposive sample of 10 firms—representing approximately 11.8% of the population—was selected based on specific inclusion criteria such as continuous listing, availability of complete financial records, and consistency in capital structure reporting. The research employs fixed effects, random effects, and dynamic panel GMM estimation techniques to analyze how debt-to-equity ratios, long-term debt, short-term debt, and equity financing influence Return on Assets (ROA) and Return on Equity (ROE). The findings reveal that capital structure significantly affects firm performance in Nigeria's manufacturing sector. Specifically, the debt-to-equity ratio demonstrates a positive but diminishing effect on ROA (β = 0.234, p < 0.05), while equity financing shows a strong positive impact on both ROA (β = 0.567, p < 0.001) and ROE (β = 0.412, p < 0.01). Long-term debt exhibits mixed effects depending on firm size and industry characteristics, whereas excessive short-term debt negatively impacts performance (β = -0.189, p < 0.05). The study confirms that an optimal capital structure enhances firm value through improved financial efficiency and risk management. Control variables such as firm size, age, and industry classification significantly moderate these relationships. These results have important implications for Nigerian manufacturing firms seeking to optimize their financing mix, as well as for policymakers shaping corporate finance regulations. The study contributes to the growing literature on capital structure optimization in emerging markets and offers actionable insights for corporate managers and financial institutions operating within Nigeria’s manufacturing landscape