Capital Structure and Financial Performance: Evidence from Nigerian Food and Beverage Firms Using Panel Data
DOI:
https://doi.org/10.56919/jbam.2621.023Keywords:
Asset Growth, Capital Structure, Debt-to-Equity Ratio, Firm Performance, Firm Size, Panel DataAbstract
The relationship between capital structure and performance of listed food and beverage firms in Nigeria, 2020 - 2024, is examined in this study. Specifically, the study explores the relationship of debt-to-equity ratio (DER), firm size and asset growth to performance, as measured by return on assets (ROA) and return on equity (ROE). Using panel analysis, fixed effects and random effects regression models were estimated, while Hausman specification test indicated that fixed effects model is most appropriate and a preferred model. Assumptions underlying the econometric analysis were tested and satisfied, thereby confirming the reliability and validity of the study’s findings. The results show that DER significantly relates to firm performance, suggesting that high debt levels lead to lower profits. However, firm size and asset growthfound to have significant positive relationship, implying that larger firms and those that grow their assets perform better. The findings were consistent for both ROA and ROE, indicating stability. In view of the above, this study found that although capital structure decisions are important, excessive leverage is not healthy in Nigeria's high interest and unpredictable economic climate. Hence, it is recommended for firms to maintain an optimal debt-equity mix, while policies should focus on reducing borrowing costs and strengthening the capital market. This research, above all, provides up-to-date empirical evidence and implications for policy and practice.
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