Effect of Capital Structure and Financial Performance

There exists divergence of opinion in literature on the relationship between capital structure and firms financial performance. The mix of opinions makes the direction of their relationship to be ambiguous. This study investigated the impact of capital structure on financial performance of listed manufacturing firms in Nigeria. The study formulated four hypotheses and used generalized least square multiple regression to analyze the secondary data extracted from the annual reports and accounts of the 31 sampled firms for the period 2009 to 2014. The study found that total debt, long-term debt and short-term debt have significant impact on the financial performance of listed manufacturing firms in Nigeria. The study also found that total debt to total equity has no significant effect on the financial performance of the firms. In view of the findings, it is recommended among others that the management of listed manufacturing firms should work very hard to increase the short term debt to total assets component of their capital structure, since it has positive impact on their financial performance.