Capital Structure and the Operating Performance of Quoted Firms in the Nigerian Stock Exchange

This study attempts to investigate the impact of capital structure on performance of quoted firms in the Nigerian Stock Exchange for thirty two firms for the period 2005-2011 resulting in a total of 224 observations by analyzing the relationship between operating performance measured by return on asset (ROA) and return on equity (ROE) and capital structure variables with short-term debt (STD), long-term debt (LTD) and total debt (TD). Four variables that influence firm operating performance, namely, tangibility (TAN), liquidity (LIQ), non debt tax (NTD) and efficiency (EFF) are used as control variables. To achieve this objective, econometric framework was adopted for the purposes of data analysis. The result reveals that short term debt, long term debt and total debt have significant negative relationship with performance using return on asset and return on equity and tangibility and efficiency have significant positive relationship with performance while non tax debt and liquidity shows negative relationship with performance. On the basis of result, the paper concludes that capital structure affects the performance of firms. Therefore, useful recommendations were provided to improve the capital structure and performance architecture of quoted firms using the optimal capital structure model. Keyword: ROA, ROE, Capital Structure, quoted firm, Nigeri