Capital Structure and Financial Performance of Listed Oil and Gas Firms in Nigeria

Abstract

Extensive research has been conducted on the relationship between capital structure and financial performance of firms, with the literature documenting the impact of this relationship. In Nigeria, there has been a growing trend of firms consolidating their equity capital as opposed to debt, leading to a need for further investigation into this relationship. This study aims to address this gap by exploring the impact of equity and debt, two capital structure variables, on net profit margin, a measure of financial performance. The study focuses on ten Nigerian listed firms over a decade-long period (2010-2020) and uses published annual reports as the primary data source to ensure the findings are valid and reliable. The selected firms are representative of Nigerian listed firms on the Nigerian Stock Exchange (NSE). Regression analysis using ordinary least square methodology of secondary data indicates that capital structure has a significant positive relationship with the financial performance of Nigeria listed firms, suggesting that these firms have consistently used both debt and equity capital to improve their earnings. The study's results have several implications for managers and investors in Nigeria, including the importance of finding the optimal balance between debt and equity capital to enhance financial performance, the need for proper management of debt levels to avoid excessive leverage and financial distress, and providing insight into the factors that drive the performance of Nigerian listed firms, which can guide investment decisions and strategies. This study adds to the growing body of literature on capital structure and financial performance by analyzing the relationship between capital structure and net profit margin in Nigerian listed firms. The findings suggest that well-managed capital structure positively impacts financial performance and provides valuable insights for managers and investors in Nigeria.