Faculty: Management Sciences
Department: Banking And Finance
Echekoba, F. N.
Osisioma, B. C.
This research work ascertained the effect of financial structure on financial performance of quoted non-financial service firms on Nigerian Stock Exchange by specifically ascertaining the effect of financial structure on return on assets, return on equity, net profit margin and gross revenue. There has been inconclusive debate on whether financial structure has significant effect on firm’s financial performance. What financial structure mix should be optimal for non-financial service firms operating in turbulent business environment such as Nigeria? To achieve these objectives, the study employed various econometric techniques such as panel unit root, Kao’s residual co-integration, Johansen Fisher co-integration, granger causality test, pooled, fixed, and random effect Ordinary Least Square (OLS) estimation technique in which variations in on return on assets, return on equity, net profit margin and gross revenue were regressed on total debt to total assets ratio, total debt to total equity ratio, short term debt to total assets ratio and firms’ specific oriented factors using a panel data from 1993 to 2015. The data were sourced from Nigerian Stock Exchange factbook and firms’ annual reports as relevant. The results of the analyses revealed that financial structure has no significant effect on financial performance of quoted non-financial service on Nigerian Stock Exchange. Total debt to total assets ratio, total debt to total equity ratio, short term debt to total assets ratio have negative relationship with return on assets and return on equity. Net profit margin and gross revenue are positively related with total debt to total equity ratio and short term debt to total assets. The findings also suggest that financial structure decision of non-financial service firms quoted on Nigerian Stock Exchange are more aligned to Pecking Order Theory compared to Trade-off Theory, an indication that majority of firms prefer internal financing to external financing. In view of the findings, non-financial service firms should fund their operations with more of equity capital as debt financing negatively influence return on assets and shareholder’s wealth. Inevitably, firms performance in Nigeria have been adversely affected by the macroeconomic instability and economic recession and as such, borrowing from commercial banks, financial markets and other sources of external financing should be minimized due to high interest rates associated with such facilities.