CAPITAL STRUCTURE AND THE MARKET VALUE OF MANUFACTURING FIRMS IN NIGERIA

Author: Aboyeji Oyekanmi Moses

ABSTRACT

This study examined the effect of capital structure on the market value of manufacturing firms in Nigeria, using a 10-year panel data set covering the period from 2014 to 2023. The sample consists of 14 selected manufacturing firms, with secondary data obtained from their published financial statements. The market value of the firms is proxied by the Price Earnings Ratio (PER), while the capital structure is represented by three independent variables: Leverage (LEV), Long-Term Debt (LTD), and Short-Term Debt (STD).

Employing the Panel Generalized Least Squares (GLS) estimation technique, the findings revealed that leverage has a negative but statistically insignificant effect on market value (β = -0.1723; t-statistics = -0.6916). This suggests that although higher leverage is associated with a decline in market value, the relationship is not strong enough to be considered significant within the study period. Long-Term Debt (LTD) shows a negative and statistically significant effect on market value (β = -1.0272; t-statistics = -2.0080), indicating that increased reliance on long-term financing reduces the market value of manufacturing firms in Nigeria. This outcome suggests that heavy long-term debt burdens may erode investor confidence and negatively impact firm valuation. Conversely, Short-Term Debt (STD) exerts a positive and statistically significant influence on market value (β = 3.1634; t-statistics = 2.8516). This result implies that effective management and utilization of short-term liabilities can enhance the market valuation of manufacturing firms, potentially due to the flexibility and lower cost associated with short-term financing instruments.

Overall, the study concludes that capital structure decisions, particularly the composition of debt, play a critical role in influencing the market value of manufacturing firms in Nigeria. It recommends that manufacturing firms strategically manage their debt profiles by minimizing excessive reliance on long-term debt while leveraging the benefits of short-term financing to enhance firm value and attract investors

Keywords:  Capital structure, Leverage, Long term debt, Market value, Short term debt.

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