Capital Structure and Financial Performance: A Sectorial Analysis

Abstract

The prevailing market circumstances and the peculiarities of the industry impact their funding needs and the availability of different forms of capital that could impact the ability of firms to have an optimal capital structure that will lead to the maximization of firm value. This study examines the relationship between capital structure and financial performance (FP), shedding new light on its effect across ten (10) sectors using Shortterm debts, Long-term debts and Total equity as proxies for capital structure and two Return on Assets and Tobin’s Q as proxies for financial performance. The study was based on the positivism philosophy and adopted the ex-post factor research methodology with data extracted from the audited financial firms of 129 listed nonfinancial firms in Nigeria from 2010 to 2021. The Generalized Least Square (GLS) method was adopted for the analysis of data. The study concludes that the listed non-financial firms are financed by a mix of short-term debt, long-term debts and equity which have mixed effects on their financial performance across the various sectors. The study, therefore, recommends that firms in Nigeria should have appropriate policies to guide their capital structure decision that will ensure that they have the appropriate mix of debt and equity that will optimize their performance.