The Impact of Capital Structures on the Performance of Selected Quoted Customers Goods Manufacturing in Nigeria
Chapter One
OBJECTIVE OF THE STUDY
The main objective of this study is to examine the effect of capital structure on the performance of quoted Nigerian manufacturing firms. Specifically, it seeks to:
- Determine the impact of leverage on the return on equity of quoted manufacturing firms in Nigeria.
- Find out the effect of leverage on the return on assets of quoted manufacturing firms in Nigeria.
- Evaluate the contribution of leverage to return on investment of quoted manufacturing firms in Nigeria
CHAPTER TWO
REVIEWED OF RELATED LITERATURE
INTRODUCTION
Investors and potential investors will be obliged to invest their hard earned savings in a company that promised to make a return that will change their wealth position at a particular point in time. However, as sound as this objective is, it will be illusive if the hard earned resources are not combined for optimum utilization. The essence of capital structure decision is to ensure the right combination of financing resources that will yield maximum return without necessarily hampering the interest of stakeholders. This chapter takes a review of relevant and related literatures to the study. The main issues discussed include: foundation of capital structure decision, optimization of capital structure, capital structure and firm performance, inflation and capital structure, determinants of corporate capital structure, capital structure and cost of capital, measures of leverage, theories of capital structure as well as the theoretical frame work adopted for this study.
AN OVERVIEW OF THE NIGERIAN ECONOMY AND MANUFACTURING SECTOR
The manufacturing sector in any economy is reputed to be the engine of growth and the ultimate pillar for sustainable growth and development. The success of any 24 economy is usually measured by its productive strength and its ability to compete favourably with other economies (Borodo,2010). When the manufacturing base of a country is strong, such an economy is better equipped to create wealth, thus boosting its Gross National Product and a weak manufacturing sector spells doom for any country (Ekwere,2010). However, the state of the manufacturing sector in Nigeria has been a worrisome issue for two decades and different policies by past and present political dispensation has been structured to alleviate the funding problems of the industry Adebiyi, 2004 and Olorunisola, 2001 enumerates several development policies taking by the government stated thus: investment company of Nigeria (ICON) in 1959, Nigerian Industrial Development Bank (NIDB) established in January 1964, The Nigerian Bank for Commerce and Industry (NBCI) was established in 1973, National Economic Reconstruction Fund (NERFUND) through promulgation of Decree No 2 of 9 January 1991, The Small & Medium Enterprise Equity Investment Scheme (SMEEIS), The Bank of Industry (BoI) established in 2001. All the above policies were to support different types of businesses with primary aim of developing the medium and large-scale manufacturing enterprises. The manufacturing sector in any economy is seen as the catalyst for the transformation of the economy to a dynamic, sustained and diverse economy, as evident from the experiences of developed countries such as United State of America, 25 United Kingdom and some emerging nations like China, Japan, India and possibly few others whose manufacturing sector have played a critical role in the structural transformation of the economy from a subsistence, low production and low income state to one that is dynamic, sustained and diverse economy (Borodo,2010). Nigeria’s laudable medium term strategy document (National Economic and Empowerment Strategy – NEEDS I) affirmed that the manufacturing sector has enormous potentials for employment generation, wealth creation as well as poverty alleviation. These indicators are very significant in measuring the performance of the manufacturing sector. Thus, a critical review of these indicators showed that the Nigerian manufacturing sector is in a state of comatose as its capability to generate employment, create wealth, reduce poverty and contribute to GDP has been declining over the years (Borodo,2010). For instance, employment generation and wealth creation by the sector over the past few years has declined sharply from 2,841,083 employees in 2002 to 1,026,305 employees in 2008. Wealth can only be created when the prospective investors find the business environment conducive and profitable to do business. In Nigeria, the operating environment is very harsh with un-conducive policy for borrowing, erratic power supply to insecurity of lives and property as is presently seen in the Niger Delta and the Northern part of the country. The poverty level in Nigeria has been on the increase in recent times due to deteriorating quality of work life especially in the area of reduction of job opportunities, high costs of living, poor infrastructure and bad living conditions. According to UNDP report on Nigeria in 2007, the level of poverty increased from 46% in 1992 to 70.9% in 2006. Manufacturing contribution to GDP after independence that was 8.1% in 1970 fell to 4.13% in 2008. For capacity utilization, the state of the manufacturing sector can be appreciated by a scrutiny of the capacity utilization that has been on the decline from 70% in 1975 to 48% in 2008 among other failure. According to Ajayi (2010) the failure in other sectors of Nigeria’s economy has been likened to Dutch disease since the advent of oil syndrome which shifted attention from other sectors of the economy to oil sector. Dutch disease originated in The Netherlands during the 1960s when the high revenue generated by its natural gas discovery led to a decline in the competitiveness of its other non-booming tradable sectors. Despite the revenue windfall the new discovery brought, The Netherlands experienced a drastic decline in economic growth. It is not surprising to find a private company like the United Nigerian Textiles PLC (UNTL) collapsed; neither is the textile industry, the only distressed sector in Nigeria. Only a few firms are still active. The closure of the United Nigerian Textiles PLC (UNTL), one of the Nigeria’s leading textile firms, again opened another unpleasant chapter in the Nigeria’s economic history.
CHAPTER THREE
RESEARCH METHODOLOGY
INTRODUCTION
In this chapter, we described the research procedure for this study. A research methodology is a research process adopted or employed to systematically and scientifically present the results of a study to the research audience viz. a vis, the study beneficiaries.
RESEARCH DESIGN
Research designs are perceived to be an overall strategy adopted by the researcher whereby different components of the study are integrated in a logical manner to effectively address a research problem. In this study, the researcher employed the survey research design. This is due to the nature of the study whereby the opinion and views of people are sampled. According to Singleton & Straits, (2009), Survey research can use quantitative research strategies (e.g., using questionnaires with numerically rated items), qualitative research strategies (e.g., using open-ended questions), or both strategies (i.e., mixed methods). As it is often used to describe and explore human behaviour, surveys are therefore frequently used in social and psychological research.
POPULATION OF THE STUDY
According to Udoyen (2019), a study population is a group of elements or individuals as the case may be, who share similar characteristics. These similar features can include location, gender, age, sex or specific interest. The emphasis on study population is that it constitutes of individuals or elements that are homogeneous in description.
This study was carried to examine the impact of capital structures on the performance of selected quoted customers goods manufacturing in Nigeria. Selected manufacturing companies in Lagos form the population of the study.
CHAPTER FOUR
DATA PRESENTATION AND ANALYSIS
INTRODUCTION
This chapter presents the analysis of data derived through the questionnaire and key informant interview administered on the respondents in the study area. The analysis and interpretation were derived from the findings of the study. The data analysis depicts the simple frequency and percentage of the respondents as well as interpretation of the information gathered. A total of eighty (80) questionnaires were administered to respondents of which only seventy-seven (77) were returned and validated. This was due to irregular, incomplete and inappropriate responses to some questionnaire. For this study a total of 77 was validated for the analysis.
CHAPTER FIVE
SUMMARY, CONCLUSION AND RECOMMENDATION
Introduction
It is important to ascertain that the objective of this study was to ascertain The impact of capital structures on the performance of selected quoted customers goods manufacturing in Nigeria. In the preceding chapter, the relevant data collected for this study were presented, critically analyzed and appropriate interpretation given. In this chapter, certain recommendations made which in the opinion of the researcher will be of benefits in addressing the impact of capital structures on the performance of selected quoted customers goods manufacturing in Nigeria
Summary
This study was the impact of capital structures on the performance of selected quoted customers goods manufacturing in Nigeria. Three objectives were raised which included: Determine the impact of leverage on the return on equity of quoted manufacturing firms in Nigeria, find out the effect of leverage on the return on assets of quoted manufacturing firms in Nigeria and evaluate the contribution of leverage to return on investment of quoted manufacturing firms in Nigeria. A total of 77 responses were received and validated from the enrolled participants where all respondents were drawn from selected manufacturing companies in Lagos. Hypothesis was tested using Chi-Square statistical tool (SPSS).
Conclusion
In accordance with the research finding that Leverage explain the variables of quoted manufacturing firm’s performance, the study concludes as follows. Firstly, both empirical and statistical evidence on the effect of Leverage on the three performance indicators namely return on equity, return on assets and return on investment in the Nigerian quoted manufacturing firms have significant effect on the quoted manufacturing firms’ performance. Secondly, the study also concludes that Nigerian quoted manufacturing firms have performed remarkably well within the period of the study 2000-2009. This may be because of the technological advancements globally. Finally, the study represents a pioneering attempt in assessing the effect of Leverage on the performance of Nigerian quoted manufacturing firms looking at performance from the perspective of return on equity, return on assets and return on investment
Recommendation
The management of Nigerian quoted manufacturing firms should work very hard to optimize the capital structure of their quoted manufacturing firms in order to increase the returns on equity, assets and investment. They can do that through ensuring that their capital structure is optimal.
The Management of Nigerian quoted manufacturing firms should increase their commitments into capital structure in order to improve earnings from their business transaction.
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