Effect of Capital Structure on the Financial Performance of Listed Industrial Goods Companies in Nigeria

Abstract

The study aims to understand how various elements of capital structure—short-term debt, longterm debt, equity ratio, and debt-to-equity ratio—influence key profitability indicators like Return on Assets (ROA), Return on Equity (ROE), and Return on Capital Employed (ROCE). The research focuses on listed industrial goods companies in Nigeria, a vital sector for the nation's economy, to gain insights into the financial factors driving their performance and inform optimal capital structure decisions. Using Ordinary Least Squares (OLS) regression, the study analyzed pooled panel data from 2012 to 2021 for five selected Nigerian industrial goods companies. The findings indicate that while short-term debt, long-term debt, and equity ratio have a positive but statistically insignificant impact on Return on Equity (ROE), the debt-to-equity ratio (DER) shows a negative and statistically significant effect. This means that an increase in the proportion of debt relative to equity is associated with a notable decrease in shareholder returns. The study concludes that a high debt-to-equity ratio negatively impacts ROE, and cautions against relying solely on debt to boost shareholder returns. It recommends maintaining a balanced capital structure to optimize profitability and create sustainable value in the Nigerian industrial goods sector.