Capital Structure and Performance of Manufacturing Firms in Nigeria: Evidence from Guinness Nigeria PLC

Abstract

This study investigates the relationship between capital structure and the financial performance of manufacturing firms in Nigeria, with specific evidence drawn from Guinness Nigeria PLC over a ten-year period spanning 2013 to 2022. The study employs panel data regression analysis—incorporating Ordinary Least Squares (OLS), Fixed Effects Model (FEM), and Random Effects Model (REM)—validated through the Hausman specification test. Three capital structure proxies were employed: Debt-to-Equity Ratio (DER), Debt Ratio (DR), and Long-term Debt to Total Assets (LTDA), while Return on Assets (ROA) and Return on Equity (ROE) served as performance indicators. Control variables included Firm Size (FSIZE) and Sales Growth (SG). Secondary data were extracted from Guinness Nigeria PLC annual reports and the Nigerian Exchange Group (NGX) database. Findings reveal that debt-to-equity ratio has a significant negative effect on ROA (β = −0.341, p < 0.05), while long-term debt to total assets exerts a significant positive influence on ROE (β = 0.218, p < 0.05). The Hausman test favoured the Fixed Effects Model. The results lend support to the Trade-off Theory and align with recent empirical evidence from developing economies. The study recommends that Nigerian manufacturing firms adopt optimal leverage ratios to enhance shareholder value while minimising financial distress costs. These findings have implications for corporate finance managers, investors, and regulatory authorities.