Effect of Gearing on Shareholders Wealth in Quoted Manufacturing Companies in Nigeria
Author(s)
Download Full PDF Pages: 108-115 | Views: 847 | Downloads: 264 | DOI: 10.5281/zenodo.3510056
Abstract
The research work examined the effect of gearing on shareholders’ wealth in quoted manufacturing companies in Nigeria. The objective of the study was to examine how gearing affects shareholders’ wealth of quoted manufacturing companies in Nigeria. This Study is based on the stakeholder’s theory and agency theory. The secondary data source was explored in presenting the facts of the Study. The secondary data were obtained from relevant literature, journals, and annual reports of selected manufacturing companies in Nigeria for the years 2012 to 2018 (6 years). Data were tested using the Panel Least Square Regression model. The findings showed clearly that collectively, the endogenous variables (board size, firm size, and leverage) were significantly associated with the dependent variable (return on equity). Thus, these independent variables strongly have impact on shareholders’ wealth in quoted manufacturing companies in Nigeria measured by return on equity. As a result, the study concluded that gearing is a good source of finance to firms as it enables firms to carry out capital projects with positive net present values and also reduce the tax payable by the firms. The study recommended among others that, since the major goal of a firm is to maximize profits, the management of quoted manufacturing firms should ensure that gearing levels are maintained at a minimum level.
Keywords
Board Size, Firm Size, Leverage, Manufacturing Firms, Return on Equity
References
i. Aregbeyen, O., & Mbadiugha, S. O. (2011). Factors Influencing Investors Decisions in Shares of Quoted Companies in Nigeria. The Social Science, 6(3): 205 – 212.
ii. Azeem, M. & Kouser, R. (2011). International Accounting Standards and Value Relevance of Book value and Earnings: Panel study from Pakistan. International Journal of Contemporary Business Studies, 1(9), 18-35.
iii. Beckett, J. & Cheryl S. k., (2002). The challenge to improve citizen participation in public budgeting: A Journal of Public Budgeting, Accounting and Financial Management, 14(3): 463-85.
iv. David, F. D., & Olorunfemi, S., (2010). Capital structure and corporate performance in Nigerian Petroleum Industry: Panel Data Analysis. Journal of Mathematics and Statistics, 168-173.
v. Donaldson, L. & Davis, J. H. (1991).Stewardship Theory or Agency Theory: CEO Governance and Shareholder Returns. Retrieved from www.agsm.edu.au/eajm /9106/pdf/donaldson.pdf on 17th January, 2016.
vi. Emekekwue, P. E. (2005), Corporate Financial Management, Congo; 5th edition, African Bureau of Educational Sciences.
vii. Fosberg, R. H., & Ghosh, A. (2006). Profitability and Capital structure of Amex and Nyse Firms. Journal of Business & Economics Research , 57-64.
viii. Freeman, R. E., (1984) Strategic Management: A Stakeholder Theory’ Journal of Management Studies 39 (1), 1-21.
ix. Gordon, M. J. (1962). The Investment, Financing, and Valuation of the Corporation. Homewood, Illinois: Irwin Publishers.
x. Jensen, M. C. (1986) Agency Cost of Free Cash Flow, Corporate Finance and Takeovers. American Economic Review, 76 (2), 323-329.
xi. Jiraporn, P., (2011). Liquidity and Capital Structure: The Case of Thailand. Journal of Multinational Financial Management, 21(2) 106-117.
xii. Karnawi, K, (2017). Analysis of the effect of return on equity and debt to equity ratio on stock price on cement industry listed in Indonesia stock exchange in the year of 2011- 2015. Journal of Business and Management, 19(5), 66-76.
xiii. Laurent, W. (2002). Leverage and corporate performance: Does Institutional environment matter? Journal of small Business Economics, 251-265.
xiv. Maina, L., & Ishmail, M. (2014). Capital structure and Financial Performance in Kenya: Evidence from firms listed at the Nairobi Securities Exchange. International Journal of Social Sciences and Entrepeneurship, 1-14.
xv. Margaritis, D., & Psillaki, M. (2007). Capital structure and Firm Efficiency. Journal of Business Finance, 1447-1469.
xvi. Merilkas, A., Merilkas, A., & Prasad, D. (2013). Factors influencing Greek investor behaviour on the Athens stock exchange, Paper presented at the Annual Meeting of the Academy of Financial Services, Denver, Colorado.
xvii. Miller, M. H., & Modigliani, F. (1961).Dividend policy, growth, and the valuation of shares. The Journal of Business, 34(4), 411-433.
xviii. Mwangi, L. W., Makau, M. S., & Kosimbei., (2014). Relationship between capital structures and performance of Non- financial companies listed in Nairobi Security Exchange, Kenya . Global Journal of Contemporary Research in accounting, Auditing and Business Ethics, 72-90.
xix. Paramasivan, C. and Subramanian, T., (2012).Financial Management.Fifth Edition, New Delhi, New Age International Limited.
xx. Pike, R. & Neale, B. (2009).Corporate finance and investment: Decisions and strategies, Harlow, Financial Times Prentice Hall.
xxi. Onaolapo, A. A., & Kajola, S. O. (2010). Capital Structure and Firm performance: Evidence from Nigeria. Journal of Economics, Finance and Administrative Sciences, 70-82.
xxii. Otley, D. (1980), “The Contingency Theory of Management Accounting: Achievement and Prognosis”, Accounting Organisation and Society, 5, 194 - 208.
xxiii. Rosikah, Dwi K. P., Dzulfikri, A. M, Muh, I.A. & Miswar R.(2018). Effect of Return on Asset, Return on Equity, Earnings Per Share on Corporate Value. The International Journal of Engineering and Science, 7(3) 6-14.
xxiv. Thaddeus, E. O., & Chigbu, E. E. (2012). Analysis of Effect of financing leverage on Bank Performance: Evidence from Nigeria. Journal of Public Administration and Governance, 178-187.
xxv. Uddin M. H., & Chowdhury G. M. (2005). Effect of Dividend Announcement on Shareholders’ Value: Evidence from Dhaka Stock Exchange, Journal of Business Research, 7 (1), 61-72.
Cite this Article: