Effect of Capital Structure on the Profitability of Non-Financial Institutions in Nigeria

Abstract

Capital structure decision primarily deals with the question of how much debt is needed to optimize the value of a firm. The research objective was to establish effects of capital structure on the profitability of non- financial institutions in Nigeria. Theoretically it is assumed that the capital mix a firm uses to finance its operations does not matter and that its future operating income generated by its asset is what determines its value. Multiple linear regression which is capital structure determinant independent variable, leverage ratio, growth of the firm and earnings management. These variables were used to establish whether capital structure decisions affect profitability of non-financial intuitions in Nigeria. Secondary data was collected from 2015 to 2020 and analyzed with the aid of statistical tools. Descriptive study research design was used to determine frequency of occurrence or extent to which variables were related. The population used in this study was five non-financial institution listed at the NSE, study further found out that profitability improved with increase in liquidity and sales growth. From the findings outlined above, the study recommends that companies, should consider borrowing less funds and use internal funds economically so that they can consequently reap from such funds and increase their profit. The study concludes that the firm management should take into account their liquidity which is significant and growth as this also turned to be critical factors in determining profit.