Capital Structure and Firm Performance Evidence from Nigerian Listed Firms

Abstract

Capital structure decisions remain a fundamental aspect of corporate financial strategy, particularly in emerging markets where access to finance, cost of capital, and economic volatility pose significant challenges. This study investigates the effect of capital structure on firm performance among selected firms listed on the Nigerian Exchange Group (NGX), utilizing a mixed-methods research design to capture both numerical evidence and contextual understanding. The quantitative phase of the study analyzes data from fifty (50) firms across key sectors— manufacturing, banking, telecommunications, and oil and gas—over a seven-year period (2015– 2021). Capital structure variables such as debt-to-equity ratio, long-term debt ratio, and total debt ratio are evaluated against performance indicators like return on equity (ROE), return on assets (ROA), and earnings per share (EPS).To complement the quantitative findings, qualitative data were obtained through semi-structured interviews with ten (10) senior financial managers and chief finance officers (CFOs) within the sampled firms. The interviews explored the rationale behind capital structure decisions, challenges in capital sourcing, and the perceived impact of financing choices on operational efficiency and shareholder value.Findings from the quantitative analysis reveal that while moderate levels of debt can enhance firm performance, excessive leverage tends to erode profitability and increase financial distress risk. Conversely, firms that rely solely on equity financing often face higher capital costs and diluted control. The qualitative insights underscore the importance of strategic financial planning, industry dynamics, and macroeconomic factors such as interest rates and inflation in capital structure decisions. The study concludes by recommending an optimal capital mix that balances risk and return, and advocates for policy reforms aimed at improving access to long-term financing instruments in Nigeria’s capital market. The research contributes to the existing body of knowledge by offering empirical and practical insights relevant to corporate managers, investors, and financial regulators.