Post on 27-Apr-2023
IMPACT OF CAPITAL STRUCTURE ON FINANCIAL PERFORMANCE OF CEMENTMANUFACTURING INDUSTRY IN NIGERIA: CASE STUDY OF ASHAKA AND DANGOTECEMENT COMPANIES
By NDULUE IFEYINWA THERESA
Department Of Business AdministrationUniversity Of Abuja
+2348051746999
EKECHUKWU CHINONSO HENRYDepartment Of Business Administration
University Of Abuja+2347038770909
tootite2010@yahoo.com
OPUSUNJU MICHAEL ISAAC +2347037242315opusunjumike@gmail.com
This study empirically investigate the impact of capital structure on financial performance ofcement manufacturing industry in Nigeria using Dangote and Ashaka cement as a case study. Theannual financial statements of the companies were used for this study which covers a period of six(6) years from 2008-2013. Ordinary Least square regression analysis was applied on performanceproxies (Return on Asset (ROA) and Return on Equity (ROE) as well as total debt (TD) and TotalEquity (TE) as capital structure proxies. The results shows that, there is a positive significantrelationship between ROE and Total equity and there is positive significant relationship with ROAand total debt, ROE and total Equity, ROA and total debt. The study recommends that, firms shouldnot use equity as a source of finance since insignificant relationship exists between the capitalstructure and performance (total equity and ROE). They should try to finance their activities withretained earnings and debt and use equity as last option.Keywords: capital structure, financial performance, debt and equity.
INTRODUCTION
A firm funds its operation with capital raised from various sources
like internal and external. A mix of these various sources is generally
referred to as a firm capital structure. The internal source refers to
the funds generated from within which are mostly retained earnings. It
results from performance firm earn from its commercial activities. Funds
sourced not from within the earnings of firm activities are called
external financing.
A firm capital structure affects the financial performance of the
firm. It determines the success and failure of the firm. It is necessary
to note that, when a firm has a good capital structure, such firm can
stand in the future against financial crises. Firm build up a good
capital structure (debt and equity) so it can generate return on
investment, return on asset, return on equity, net profit, gross profit,
return on earning etc.
This research attempts to fill the gap in this field by
investigating the impact of capital structure on financial performance of
cement manufacturing industry using different variables like return on
Asset (ROA), Return of Equity (ROE), and total debt both short and long
term (TD), Total Equity both common and preferred equity (TE) and a time
frame that is considered most recent when compared with the researches
reviewed in this work.
Despite firms using different sources of financing, some of them are
still stagnated and others are failing. This could be attributed to lack
of knowledge on the best sources of financing with majority of owners
having no ideas on how debts and equity influence their ROE and ROA.
Firms may also have a high mix of debt and equity because they are unable
to generate retained earnings. However, there is a little that has been
done on the impact of capital structure on financial performance of firms
especially in Nigeria. Therefore, this study analyzed impact of capital
structure on financial performance of cement manufacturing industry.
The significance of this study is that, it will help the investors
to create such a portfolio that yield them maximum profit. It will also
enable them to know the choice of capital structure and its effect on
financial performance of their company and also be of help for academic
research.
The objective of this study is to examine the impact of capital
structure on the financial performance of cement manufacturing industry
in Nigeria. Specifically, it is aimed at: establishing the extent
whether Total debt have any impact on Return on Asset and to ascertain
whether Total Cost of Equity have any negative impact on return on Equity
of a firm over the period 2008 – 2013 but, the limitation of this study
is the inability to considered other manufacturing industry away from
cement manufacturing industry.
In line with the above stated specify objectives of this study, the
following hypotheses are formulated in null form:
H01: There is no significant relationship between total debt and return
on Asset of a firm.
H02: There is no significant relationship between Total cost of Equity
and return on Equity of a firm.
Concept of Capital structure
Capital structure of a firm is not easy because it requires
selecting between debt and equity securities while taking into
consideration the different costs and benefits that are associated with
these securities (Osuji et al, 2012; Boopen et al, 2014).
Dare and Sola (2010) cited by Nwankwo (2014), capital structure is
the combination of equity and debt. Capital structure is defined as the
mix of debt and equity used to finance the operation of a firm (Coleman,
2006; Damodaran, 2001 cited by Suleiman, 2013). Sanghoon (2008) cited by
Nwankwo (2014), defined it as the ratio of different finance.
It is the combination of different sources of funds that firm uses
to finance its overall operations and growth (Fozia et al, 2009; Memon et
al, 2010; Memon et al, 2012), and is used to represent the proportionate
relationship between debt and equity where equity includes paid-up share
capital, share premium, reserve and surplus (retained earnings) (Pandey,
2010 cited by Leon (2013).
Nirajini et al (2013), it is a way in which a firm financed by
combining long term capital(ordinary shares and reserves, preference
shares, debentures, bank loans, convertible loan stock and so on) and
short term liabilities such as a bank overdraft and trade creditors. It
is the firm’s sources of long-term financing (Brealey, Myers& Marcus,
2001) cited by Babatunde et al (2014).
The combination of various financial sources of every company is
called capital structure (Ghalibafasl, 2005) cited by Pouraghajan et al,
(2012). It is a mix of debt and equity that will have the minimum cost of
capital and will maximize the value of the firm (Gupta et al, 2014) and
it is the mix of debt and equity maintained by a firm (Taiwo 2012;
Joshua, 2008; Athula et al 2011; and Damodaran, (2001) cited by
Suleiman, 2013). It relies upon the size of composition of debt or equity
(Muhammad et al, 2012; Tharmila et al, 2013). It is a blend of internal
and external sources of funds (Amara et al, 2014).
Mubeen et al (2014), capital structure is the different sources of
financing like Equity (Common and Preferred Equity) and Debt (Short-term
and Long-term) and can also includes short-term debt and working capital
requirements of the firm (Babatunde et al, 2014).
Fozia et al (2009); Naizuli (2011); Amara et al (2014), it is a mean
to finance company’s overall assets by selecting the appropriate mixture
of debt (long term and short term) and equity (common equity and
preferred equity) and the firm finances its assets through some
combination of equity, debt or hybrid securities (Peek and Rosengren,
2000 cited by Penvilia, 2013).
It is the total liabilities on the firm’s balance sheet (Brezeanu,
1986) cited by Mihaela (2012).And the ratio of short-term and long-term
financing (Toma et al, 1998) cited by Mihaela (2012). It is a
relationship between debt and equity (Depallens et al (1990) cited by
Mihaela (2012). It is the composition of secured capital, both according
to the sources and the duration of use of such capital (Giurgiu, 1992)
cited by Mihaela (2012).
Is the way firms finance its right hand side of the balance sheet
(Wajid et al, 2013; Heydar et al 2010). It indicates that, the firm value
concerns with and how the firm structures its capital in order to
determine its earning and create value for its assets and it is
independent of how the firm finance to invest, or to pay dividend to its
shareholders (DeAngelo et al, 2004) cited by (Wajid et al, 2013).
Puwanenthiren (2011), believed that, it is a means to finance
company’s overall assets by selecting the appropriate mixture of debt
(long term and short term) and equity (common equity and preferred
equity)
Concept of financial performance
The term performance is a controversial issue in finance largely
because of its multidimensional meanings (Prahalathan et al, 2011 cited
by Mihaela, 2012). It can be defined as outcome-based financial
indicators that are assumed to reflect the fulfilment of the economic
goals of the firm (Murphy et al., 1996) cited by Chepkemoi (2013).
It is the process of identifying the financial strengths and
weaknesses of the firm by` properly establishing relationship between the
items of the balance sheet and the profit and loss account (Leno, 2013),
and it relates to the motive of maximizing profit both to the
shareholders and on assets (Chakravarthy, 1986, cited by Ishaya et al
(2014), while the operational performance concerns with growth and
expansions in relations to sales and market value (Hofer & Sandberg,
1987) cited by Zeitun et al (2007.
A company’s performance can be measured based on the variables that
are involved in the productivity, returns, growth or even customer
satisfaction Mihaela (2012). Financial performance (reflected in profit
maximisation, maximising return on assets and maximising shareholders
return) is based on the firm’s efficiency (Chakravarthy, 1986) cited by
Mihaela (2012). But Barbosa (2005), financial performance is based on
the return on investment, residual income, earnings per share, dividend
yield, price/earnings ratio, growth in sales, market capitalisation, etc.
Kaplan and Atkinson, (1998); Lau and Sholihin, (2005) cited by
Chepkemoi (2013), recognizes the inherent advantage of financial measures
and these measures include; accounting based measures calculated from
firm’s financial statements such as ROE, ROA, and GPM (e.g. Majumdar and
Chhibber, 1999; Abor, 2005) cited by Mohammad et al (2013), market based
measures such as stock returns and volatility (Welch, 2004) cited cited
by Mohammad et al (2013), Tobin’s Q measure which mixes market values
with accounting values (Zeitun and Tian, 2007) cited by Mohammad et al
(2013), Both accounting-based and Tobin’s Q measures (e.g. Abor, 2007)
cited by Mohammad et al (2013), and other measures such as profit
efficiency, i.e. frontier efficiency computed using a profit function
(Berger and Bonaccorsi di Patti, 2006) cited by Mohammad et al (2013).
The Tobin’s Q measures means the market value of equity plus book value
of debt divide by book value of assets.
It can also include financial ratios which is from balance sheet
and income statements ( Demsetz and Lehn 1985, Gorton and Rosen 1995,
Mehran 1995, Ang, Cole, and Lin 2000) cited by Allen et al, (2002), stock
market returns and their volatility (e.g., Saunders, Strock, and Travlos
1990, Cole and Mehran 1998) cited by Allen et al, (2002), and Tobin’s q,
which mixes market values with accounting values ( Morck, Shleifer, and
Vishny 1988, McConnell and Servaes 1990, 1995, Mehran 1995, Himmelberg,
Hubbard, and Palia 1999, Zhou 2001) cited by Allen et al, (2002).
ROA has been used by Abor (2007), Ehikioya (2007) and Ebaid (2009)
cited by Boopen et al (2014), to measure firm performance while ROE has
also been used by Abor (2005) cited by Boopen et al (2014).
Kaplan and Norton, (2001) and Otley, (2003) cited by Chepkemoi
(2013), suggests that, when monitoring firm performance, managers tend to
place less emphasis on traditional financial measures of performance such
as return on investment or net profit.
Guobing et al (2001) cited by Tianyu (2013), firm performance should
be evaluated by asset operating, finance benefit, the preservation and
increase of capital value in a certain period. Slywotzky et al (2001)
cited by Tianyu (2013), said operations situation, revenue growth and
customer relationships are the three important indexes to measure firm
performance.
Theories of capital structure
Modern theory of capital structure by Modigliani and Miller (1958)
cited by Athula et al, (2011), argued that capital structure is
irrelevant to the value of a firm under perfect capital market and provide
the base for theoretical directions for capital structure decisions.
Harris and Raviv (1991) cited by Athula et al, (2011), provide a neat
taxonomy of the capital structure theories that try to address some of
these imperfections namely; agency costs theory, asymmetric information
theory etc. To them, these theories suggest the proposition that, the
capital structure impacts firm performance.
Jensen and Meckling (1976) cited by Suleiman, (2013), developed
agency theory as the monitoring cost by the principal and a residual
loss. Jensen and Meckling (1976), agency problem exists due to a conflict
of interest between shareholders and managers (agency cost of equity) or
between shareholders and debt holders (agency cost of debt). Thus, the
use of debt capital will minimize the agency cost since the payment of
debt interest reduces the surplus cash.
Leland and Pyle (1977) cited by Coleman (2006), put forth a
“signaling” theory. They noted that, the problem of asymmetric or
incomplete information in small firms will make it difficult for lenders
to accurately assess the level of risk. Thus, an entrepreneur’s
willingness to invest in his own firm serves as a signal regarding the
quality of the firm’s assets and earnings prospects.
Myers (1984) and Myers and Majluf (1984) cited by Coleman (2006),
developed a “pecking order” theory of finance. To them, insiders have
information about the firm that outsiders do not necessarily have.
Because of this informational asymmetry, outside share purchasers will
tend to under-price a firm’s shares. This means that, it is more costly
to use external debt finance than using internal funds (Myers and Majluf,
1984) cited by Chepkemoi (2013) and they predicts that, firm will follow
the pecking order as an optimal financing strategy (Myers and Majluf,
1984 cited by Chowdhury et al 2010), and also firm follows a hierarchy in
financing projects (Myers and Majluf, (1984) cited by Shah (2011).
Berger and Udell (1998) cited by cited by Coleman (2006), put
forth a “life cycle” theory of financing which contends that firms used
different types of financing for different stages of growth and firm
obtaining external sources of financing and tend to be more reliant on
insider financing.
Kraus and Litzenberger (1973) cited by Anton (2010), suggest that,
capital structure reflects a trade-off between the tax benefits of debt
and expected costs of bankruptcy. The traditional (or static) trade off
theory (TOT), maintained that, firms select optimal capital structure by
comparing the tax benefits of the debt, the costs of bankruptcy and the
costs of agency of debt as well as funding (Modigliani and Miller, 1963;
Stiglitz, 1972; Jensen and Meckling, 1976; Myers, 1977; Titman 1984)
cited by Chepkemoi (2013).
The resource based theory, maintained that, firm’s competitive
advantage is based on the possession of tangible and intangible
resources, which are difficult or costly for other firms to obtain
(Barney, 1991; Peteraf, 1993) cited by Leno (2013).
Asymmetric information theory, developed on the basis of the needs
of public companies to disclose personal information and reduce the
effect of adverse selection (Harris and Raviv, 1991) cited by Aleksandr
(2014).
Baker and Wurgler (2002) cited Popescu et al (2004), market timing
theory of capital structure is the cumulative outcome of past attempts to
time the equity market. Equity market timing theory, posits that managers
issue equity when the market is overvalued, and issue debt when the
market is undervalued (Chinmoy, 2013).
The tax theory is the introduction of a tax element which brings
complexity to capital structure theory and assumption of no taxes was
relaxed to test the validity of Modigliani and Miller (1958) cited by
Rajib(2013). Mehrotra and Mikkelson (2005) cited by Rajib (2013),
observed that, other alternative tax shelters, like leasing, depreciation
and investment allowances could be made available to the firm which would
also make the tax shield redundant.
Bankruptcy cost theory is the assumption of Modigliani and Miller
(1958) cited by Rajib(2013), suggests that, all the assets of a firm can
be sold at their economic value without incurring any liquidating
expenses. But in reality, it is not so because of the direct and indirect
costs of bankruptcy (Barclay et al, (1999) cited by Rajib, 2013).
Free cash flow theory is the amount of cash that a company has left
over after it has paid all of its expenses, including investments. This
theory expresses that, mitigation of free cash flow by paying interest of
debt and dividends prevent a manager from abusing company’s income for
personal purposes (Jensen, 1986 cited by Samuel, 2013).
The Contemporary Capital Structure Theories advance the observation
that Corporate Finance Officers (CFOs) consider the most important factor
as maintaining financial flexibility, keeping debt low in order to be
ready for unforeseen opportunities (Graham and Harvey (2001) cited by
Samuel (2013).
EMPIRICAL STUDY
Modigliani and Miller (1958) cited by Drăniceanu et al (2013),
suggested that, capital structure and firm performance are unrelated;
many researchers provided evidence on their correlation, either positive
or negative.
Babatunde et al (2014), investigate the relationship between capital
structure and profitability of conglomerate, consumer goods, and
financial services firms quoted in Nigeria Stock Exchange. They Data
collected from the ten randomly selected firms among the three industries
were from 2000 to 2011 and sample size of 120. They used Return on Asset
(ROA) and Return on Equity (ROE) as performance proxies and debt equity
ratio (DER) and debt asset ratio (DAR) were used as capital structure
proxies and analysed using correlation coefficient and regression
techniques. They found that, the relationship between capital structure
(both DER and DAR) and return on asset (ROA) is not significant across
all firms except for 7up and Nestle. They also found that, there is an
insignificant relationship between return on equity (ROE) and DAR.
However, there was a significant relationship in almost all firms between
return on equity and debt to equity. To their findings, the nature of the
industry also determines the effect of capital structure on their
profitability. In the financial firms, there is a negative significant
relationship between return on equity and debt to assets ratio. In the
conglomerate firms, there is also a negative relationship between return
on assets (ROA) and debt to equity ratio however not significant.
Nirajini et al (2013), investigate the impact of capital structure
on financial performance of trading companies in Sri Lanka during 2006 to
2010 (05 years) financial year. Data was extracted from the annual
reports of sample companies. Correlation and multiple regression analysis
were used for analysis. The results revealed that, there is a positive
relationship between capital structure and financial performance. And
also, capital structure is significantly impact on financial performance
of the firm which shows that, debt asset ratio, debt equity ratio and
long term debt correlated with gross profit margin(GPM), net profit
margin(NPM), Return on Capital Employed(ROCE),Return on Asset (ROA) &
Return on Equity(ROE ).
Tharmila et al (2013), studied the impact of capital structure on
firm’s performance using a sample of thirty companies listed on the
Colombo Stock Exchange and a period of 5 five years from 2007 to 2011.
The study used Return on capital employed (ROCE), Return on Equity (ROE)
and Net Profit ratio as performance proxies and total debt (TD) and
Total Equity (TE) were used as capital structure proxies. The
relationship between independent variable capital structure and dependent
variable financial performance were tested by correlation analysis. The
results indicated that, there is a negative relationship between the
capital structure and financial performance.
Mohammad et al (2013), investigate the impact of capital structure
on firm performance using multiple regression with a pool panel data
procedure as well as four accounting-based measures of financial
performance (i.e. return on equity (ROE), return on assets (ROA), market
value of equity to the book value of equity (MBVR), Tobin’s Q ) and
capital structure measures (short-term debt to total assets (SDTA), long-
term debt to total assets (LDTT), total debt to total assets (TDTA) and
total debt to total equity (TDTQ)) and based on a sample of 85 firms
listed in Tehran Stock Exchange from 2006 to 2011. The results indicated
that, firm performance which is measured by (ROE,MBVR & Tobin’s Q) is
significantly and positively associated with capital structure, while
report a negative relation between capital structure and (ROA, EPS).
Osuji et al (2012), examines the impact of capital structure on
financial performance of Nigerian firms using a sample of thirty non-
financial firms listed on the Nigerian Stock Exchange during the seven
year period, 2004 – 2010 with a Panel data for the selected firms and
analyzed using ordinary least squares (OLS). They found that, a firm’s
capital structure surrogated by Debt Ratio, DR has a significantly
negative impact on the firm’s financial measures (Return on Asset, ROA,
and Return on Equity, ROE).
Khalaf (2013), investigate the relationship between capital
structure and firm performance across different industries using a sample
of Jordanian manufacturing firms in Jordan. The annual financial
statements of 45 manufacturing companies listed on the Amman Stock
Exchange were used for the study which covers a period of five (5) years
from 2005-2009. Multiple regression analysis was applied on performance
indicators such as Return on Asset (ROA) and Profit Margin (PM) as well
as Short-term debt to Total assets (STDTA), Long term debt to Total
assets (LTDTA) and Total debt to Equity (TDE) as capital structure
variables. The results indicated that, there is a negative and
insignificant relationship between STDTA and LTDTA, and ROA and PM; while
TDE is positively related with ROA and negatively related with PM. STDTA
is significant using ROA while LTDTA is significant using PM.
Forough et al (2014), examine the relationship between capital
structure and firm performance based on the competitive advantage in the
firms listed on the Tehran Stock Exchange. They used lagged leverage,
square of lagged leverage, relative leverage, square of lagged relative
leverage, as the independent variables and Herfindahl-Hirschman as the
mediator variable and sample composed of 202 firms selected among 13
different industries over a period from 2006 to 2011. They found that,
there is a positive significant relationship between leverage and the
financial performance and also found that, there is an inverse
significant relationship between square leverage and firm performance.
Gupta et al (2014), examines the capital structure of selected
construction companies listed in the Bombay Stock Exchange in India
between the periods 2009 to 2013 using data from the secondary sources
i.e. from the annual reports of the selected sample companies. Multiple
Regression and correlation were used to analyze the data. The variables
used for the study were Debt Equity Ratio, Long term debt and Debt Asset
Ratio as the independent variable and Gross Profit Margin (GPM), Net
Profit Margin (NPM), Return on Capital Employed (ROCE), Return on Assets
(ROA) and Return on Equity (ROE) as the dependent variables. The result
revealed that, there is a positive relationship between the capital
structure and financial performance of the selected firms.
Muhammad et al (2012), examines the impact of capital structure on
firms’ financial performance in Pakistan of top 100 consecutive companies
in Karachi Stock Exchange for a period of four years from 2006 to 2009.
Exponential generalized least square regression were use to test the
relationship between capital structure and firms’ financial performance.
The results showed that, all the three variables of capital structure,
Current Liabilities to Total Asset, Long Term Liabilities to Total Asset,
Total Liabilities to Total Assets, negatively impacts the Earning before
Interest and Taxes, Return on Assets, Earning per Share and Net Profit
Margin whereas Price Earning ratio shown negative relationship with
Current Liabilities to Total Asset and positive relationship were found
with Long Term Liabilities to Total Asset where the relationship is
insignificant with Total Liabilities to Total Assets. The results also
indicated that, Return on Equity has an insignificant impact on Current
Liabilities to Total Asset and Total Liabilities to Total Assets but a
positive relationship exists with Long Term liabilities to Total Asset.
Methodology The research used historical research design and ordinary Least
square regression to analysed data. Data for this study was gathered from
the financial statements as published by cement manufacturing companies.
The sample interval is for five-year period from 2009 to 2013. The
population of the study is made up of the 10 cement manufacturing
companies in Nigerian and two sample size was chosen as a sample studied
( Danagote and Ashaka Cement company).
Return on asset (ROA) and return on equity (ROE) were used as
proxies for firms performance while the proxies used for capital
structure include total debt (TD) and total equity (TE). Using the SPSS
view (e-view) software and data obtained from these companies were
tabulated and analyzed using simple regression models.
ROA is calculated by dividing net income plus interest expenses with
total assets (Net income/shareholder fund), return on equity (ROE) is
defined by dividing net income by equity (earnings before tax/total
asset).
Total debt is adding Short-term and Long-term debt while total
equity is adding Common and Preferred Equity and the simply regression
model is stated below:
ROA = AI+ ßISTD+ß2LTD+ +E
ROE = AI+ ßICE+ß2PE+ E
Data analysisTable 1
Hypothesis 1: Dangote cement Plc (2008-2013)
Model R
RSquare
AdjustedR Square
Std.Error of
theEstimate
Change Statistics
R SquareChange
FChange df1 df2
Sig. FChange
1 .046a .002 -.247 .18939 .002 .008 1 4
Coefficients
Model
UnstandardizedCoefficients
Standardized
Coefficients
T Sig.
95.0% ConfidenceInterval for B
BStd.Error Beta
LowerBound
UpperBound
1 (Constant)
.333 .212 1.566 .192 -.257 .922
Total debt
1.525E-10
.000 .046 .092 .931 .000 .000
a. Independent variable: total debt
b. Dependent Variable: ROA
Table 2Hypothesis 2: Dangote cement Plc (2008-2013)
Model R
RSquare
AdjustedR Square
Std.Error of
theEstimate
Change Statistics
R SquareChange
FChange df1 df2
Sig. FChange
1 .284a .081 -.149 5.04539 .081 .352 1 4
Coefficients
Model
UnstandardizedCoefficients
Standardized
Coefficients
T Sig.
95.0% ConfidenceInterval for B
BStd.Error Beta
LowerBound
UpperBound
1 (Constant)
5.045 3.442 1.466 .217 -4.512 14.601
Totalequity
-6.778E-9
.000 -.284 -.593 .585 .000 .000
a. independent variable: Total equitya. Dependent Variable: ROE
Table 3Hypothesis 1: Ashaka cement Plc ( 2008 -2013)
Model R
RSquare
AdjustedR Square
Std.Error of
theEstimate
Change Statistics
R SquareChange
FChange df1 df2
Sig. FChange
1 .078a .006 -.242 .00621 .006 .024 1 4
Coefficients
Model
UnstandardizedCoefficients
Standardized
Coefficients
T Sig.
95.0% ConfidenceInterval for B
BStd.Error Beta
LowerBound
UpperBound
1 (Constant)
.060 .030 1.964 .121 -.025 .144
Totaldebt
2.461E-10
.000 .078 .156 .884 .000 .000
a. independent variable: Total debta. Dependent Variable: ROA
Hypothesis 2: Ashaka cement Plc (2008 -2013)
Model R
RSquare
AdjustedR Square
Std.Errorof theEstimat
e
Change Statistics
Durbin-Watson
RSquareChange
FChange df1 df2
Sig. FChange
1 .184a
.034 -.208 .01829 .034 .141 1 4 .727 2.348
Coefficients
Model
UnstandardizedCoefficients
StandardizedCoefficients
T Sig.
95.0% Confidence Intervalfor B
B Std. Error Beta Lower Bound Upper Bound
1 (Constant) .072 .014 4.993 .008 .032 .112
totalequity
-1.363E-10 .000 -.184 -.375 .727 .000 .000
a. Independence variable: Total equity a. Dependent Variable: ROE
Discussion on finding Table 1: Based on the result from the analysis examined, the t-value
is 1.566 and the result showed that, the t-tabulated was less than thecalculated value of t-falls in the rejection area at 95% level ofsignificance than the Null hypothesis that, there is no significantrelationship between total debt and return on Asset of Dangote cement Plcis rejected. Hence, H1 is accepted, which states that, there is asignificant relationship between return on Asset as a result of totaldebt. The result of 0.46 confirmed that there is positive and significant
relationship between ROA and total debt of Dangote Cement Plc. The resultfrom R-square showed that, ROA in the company is explained by about 0.6%of total debt.
Table 2: As showed from the analysis examined, the t-value is 1.964and the result showed that, the t-tabulated was less than the calculatedvalue of t-falls in the rejection area at 95% level of significance thanthe Null hypothesis that, there is no significant relationship betweentotal equity and return Equity of Dangote cement Plc is rejected. Hence,H1 is accepted, which states that, there is a significant relationshipbetween return on equity as a result of total equity. The result of .284confirmed that there is positive and significant relationship between ROEand total equity of Dangote Cement Plc. The result from R-square showedthat, ROA in the company is explained by about 69.1% of total equity.
Table 3: In line with the result from the analysis examined, the t-value is 1.964 and the result showed that, the t-tabulated was less thanthe calculated value of t-falls in the rejection area at 95% level ofsignificance than the Null hypothesis that, there is no significantrelationship between total debt and return Asset of Ashaka cement Plc isrejected. Hence, H1 is accepted, which states that, there is a significantrelationship between return on Asset as a result of total debt. Theresult of .078 confirmed that there is positive and significantrelationship between ROA and total debt of Ashaka Cement Plc. The resultfrom R-square showed that, ROA in the company is explained by about 0.6%of total debt.
Table 4: as indicated from the analysis, the t-value is 4.993 and theresult showed that the t-tabulated was less than the calculated value oft- falls in the rejection area at 95% level of significance than the Nullhypothesis that, there is no significant relationship between total debtand return Asset of Ashaka cement Plc is rejected. Hence, H1 is accepted,which states that, there is a significant relationship between return onEquity as a result of total equity. The result of .184 confirmed thatthere is positive and significant relationship between ROE and total debtof Ashaka Cement Plc. The result from R-square showed that, ROE in thecompany is explained by about (2.08%) of total equity.
Conclusion
This study examines the impact of capital structure on firm performance.
Based on the selected sample size of two and capital structure proxies
like TD, TE as well as ROA and ROE as performance proxies, there is a
positive and insignificant relationship between capital structure and
firm performance. The study concludes that statistically, capital
structure represented by Total debt (TD) and Total Equity (TE) is the
major determination of firm performance. Although, the study also found
statistically that, there is significant relationship between capital
structure and firm performance in Ashaka cement Plc and this study was
consistency with the study of Muhammad et al (2012), Nirajini et al
(2013), Gupta et al (2014) and Forough et al (2014).
Recommendation
The study recommends that firms should use debt and equity as a source of
finance since positive significant relationship exists between the
capital structure and performance (total equity and ROE) and Total debt
and ROA used in this work. They should try to finance their activities
with retained earnings, debt and equity.
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