Impact of capital structure on financial performance of listed consumer goods companies in Nigeria

Abstract

Purpose: This study examines the impact of capital structure on the financial performance of listed consumer goods companies in Nigeria.

Methodology: The study covers a 14-year period (2010–2024). Capital structure is proxied by Total Debt to Total Assets (TDTA), Long-Term Debt to Total Assets (LTDA), and Total Debt to Equity (TDTE), while financial performance is measured using Return on Assets (ROA) and Tobin’s Q. Secondary data were sourced from the Nigerian Exchange Group (NGX) for 16 listed consumer goods firms that met the selection criteria. The study employed descriptive statistics, correlation matrix, and panel regression analysis using Panel Corrected Standard Errors (PCSE) to test the hypotheses.

Result and conclusion: The findings reveal that TDTA and LTDA have significant positive effects on ROA, while TDTE exerts a significant negative effect, implying that asset-based and long-term debt financing enhance profitability, whereas excessive equity-based leverage reduces it. For Tobin’s Q, TDTE and firm size show significant negative effects,

Implication of findings: Indicate that high leverage and larger firm size are associated with lower market valuation. The study concludes that an optimal mix of debt financing is critical for enhancing firm profitability and market value. It recommends that managers of consumer goods firms should carefully structure their capital mix, with more emphasis on long-term debt financing, while avoiding excessive equity-based leverage to improve both profitability and shareholder value.