Cost of Capital and Corporate Performance of Selected Quoted Nigerian Manufacturing Firms
Author’s Details: (1)Professor Rufus I. Akintoye-Department of Accounting, Babcock University-Ilishan-Remo, Ogun State, Nigeria (2)Dr. Fola Adegbie-Department of Accounting, Babcock University-Ilishan-Remo, Ogun State, Nigeria (3)Professor Olalekan Askhia-Department of Business Administration and Marketing, Babcock University-Ilishan-Remo, Ogun State, Nigeria (4)Abolade Akintola-Ph.D Scholar-Department of Business Administration and Marketing-Babcock University, Ilishan-Remo-Ogun State, Nigeria
Abstract
The issue of how a company is financed has been of concern to finance managers for a long time. The optimal capital structure may be defined as where the weighted average cost of capital is at the lowest while maximizing the market value of the firm. The objective of our study is to determine how capital structure affects the corporate performance of selected quoted manufacturing companies in Nigeria over a period of seven (7) years (2008-2014) using twenty (20) quoted manufacturing firms. The work employed a fixed effect and random effect model to determine the effect of the cost of capital on corporate performance. The ex-post facto research design was used for this study. The secondary data were obtained from the financial statements and Facebook published by the Nigerian Stock Exchange (NSE). Descriptive statistics and linear regressions were used for the study. The results of the analysis showed that cost of equity had a significant and positive effect on net profit before tax, cost of debt has a positive relationship on the market price per share while the weighted average cost of capital had a negative effect on earnings per share in Nigeria quoted manufacturing firms. Based on evidence from the findings, we recommend that companies management should ensure that financial decisions made by them are in consonance with the shareholders’ wealth maximization objectives which extends to profit maximization objective of the firm. The study further recommends that financial managers should take factor like internal financing into consideration as recommended by pecking order theory in their decision of capital structure
Keywords: Capital structure, corporate performance, maximization of shareholders wealth; Maximization of profit, earnings per share.
