ABSTRACT
The study made use of ex-post facto research design sourcing data from selected quoted firms in Nigeria spanning from 2009-2018. The study used Panel data and linear regression analysis to analyse the data with the aid of E-views9. The result reveal that RNCATA and RCATA was significant at 5% tolerance level. The coefficient of RNCATA was positive indicating that a unit increase in RNCATA will increase ROA by 2.68units. The coefficient of RCATA is positive implying that 1 unit increase in RCATA will ROA by 2.66units. The results showed that a firm’s increased investment in non-current assets and current assets significantly increases its return on asset. The F-statistics also was rightly specified hence the conclusion that there is statistically significant relationship between the dependent variable and the explanatory variables, therefore, the effect of asset structure on the ROA of the firms understudy is significant. The study concluded that increased investments in viable assets would increase a firm’s value and returns. The study therefore recommended that companies’ asset structure should be monitored and evaluated on a regular basis by the respective company managements to ensure that the composition meets the strategic requirements of the firms. The study also recommends prudent use and management of assets to increase firm’s value.
TABLE OF CONTENTS
Cover page i
Title page ii
Declaration iii
Certification iv
Dedication v
Acknowledgements vi
Abstract vii
CHAPTER ONE: INTRODUCTION
1.1 Background to the Study 1
1.2 Statement of the problem 3
1.3 Objectives of the Study 5
1.3 Research Questions 5
1.5 Research Hypotheses 5
1.6 Significance of the Study 6
1.7 Scope of the Study 6
1.8 Operational Definition of Terms
CHAPTER TWO: REVIEW OF RELATED LITERATURE
2.1 Conceptual Framework 7
2.1.2 Asset Definitions 7
2.1.3 Recognition Criteria of Asset 8
2.1.4 Property, Plant & Equipment 9
2.1.5 Current Assets 11
2.1.6 Non-Current Assets
(NCA) 12
2.1.7 Assets Structure 13
2.1.8 Asset Structure of Manufacturing Firms 13
2.1.9 Profitability 14
2.1.10 Concept of Financial performance 15
2.1.10 Assets Structure and performance of the Firm 16
2.2 Theoretical Framework 21
2.2.1 Agency Theory 21
2.2.2 Stakeholders Theory
22
2.2.3 Pecking Order Theory 23
2.2.4 Trade - off theory 24
2.3 Empirical Review 25
CHAPTER THREE: METHODOLOGY
3.1 Research Design 30
3.2 Population of the Study 30
3.3 Sample Size and Sampling Technique 30
3.4 Method of Data Collection 31
3.4 Data Analysis Technique 31
3.5 Model Specification 31
CHAPTER FOUR: DATA PRESENTATION, ANALYSIS AND DISCUSSION OF
FINDINGS
4.1 Data Presentation 34
4.2 Data Analysis 36
4.2.1 Descriptive
Statistics 36
4.2.2 Panel Regression 37
4.3 Test of Hypotheses 44
4.4 Discussion of
Findings 45
CHAPTER FIVE: SUMMARY, CONCLUSION AND RECOMMENDATIONS
5.1 Summary of Findings 47
5.2 Conclusion 47
5.3 Recommendations 47
REFERENCES 49
APPENDIX 53
CHAPTER ONE
INTRODUCTION
1.1 Background to The Study
Assets
structure has been defined using various aspects by different scholars based on
the direction of the study. According to Okelue, & Nweze, (2012), asset
structure is the allocation of the resources diversely. It can be broken down
into three (3) components namely: turnover assets, production assets and
wasting assets. Koralun-Bereźnicka (2013) described asset structure as a
combination of the various asset components which were identified as: financial
fixed assets; tangible fixed assets; current assets; and current investments
and cash in hand and at bank. A similar approach is taken by Schmidt (2014),
where asset structure is described in terms of: current assets; long term
investments and funds; Property, Plant and Equipment; intangible assets; and others
assets. On the other hand, Mawih (2014) studied the assets structure
conceptualizing it as a component of fixed assets and current assets. Empirical
evidence has concluded that the study of asset structure is significant to the
business organizations. ZhengSheng and NuoZhi (2013) contends that the research
on assets structure has more practical value and universal significance than
capital structure as they are the main source of creating corporate value and
avoid risks. Olatunji (2014) posits that investments in fixed assets have
strong and positive statistical impact on the profitability of banking sector
in Nigeria. Assets structure has also been widely reported by corporate finance
literature to significantly affect financial structure of firm (Kolade, 2013).
Firms’
performance depends on the structure of assets. Assets consist of two types of
assets, fixed and current assets. The manufacturing companies use fixed assets
to transfer the raw materials into finished goods. These assets are called property,
plant, and equipment include land, building, equipment, automobiles, and
furniture. Assets are property or property owned by the company in a certain
period. Based on the way and duration, there are two types of assets: current
asset and fixed asset. The ratio of those assets will determine the firm asset
structure. The condition of the company's assets may affect the company's
funding policy. Companies that have more current assets in their asset
structure tend to use debt to meet their financing activities, while firms with
more fixed assets tend to use their own capital to meet their financing
activities. A firm that has suitable asset for collateral will get loan, which
will make the firm getting the source of funds easily, which increases the firm
value.
Empirical
evidence has concluded that the study of asset structure is significant to the
business organizations. ZhengSheng and NuoZhi (2013) contends that the research
of assets structure has more practical value and universal significance than
capital structure as they are the main source of creating corporate value and
avoid risks. Olatunji et al.
(2014) found that investments in fixed assets have strong and positive
statistical impact on the profitability of banking sector in Nigeria. Assets
structure has also been widely reported by corporate finance literature to
significantly affect financial structure of firm (Kolade, 2013).
Financial
performance refers to a firm’s ability to generate new resources from day to
day operations over a given period of time (Bora, 2008). It involves enhancing
shareholders’ wealth and profit making which are among the major objectives of
a firm (Pandey, 2005). Shareholder’s wealth is mainly influenced by growth in
sales, improvement in profit margin, capital investment decisions and capital
structure decisions (Arnott and Asness, 2003). Various indicators have been
used to measure the financial performance of the firms by various scholars.
This study develops a composite index by getting the simple average of: earning
per share; return on assets; return on equity, profit margin (return on sales);
and current ratio, as a measure the financial performance of the firms under
study.
1.2. Statement
of the Problem
The
contribution of companies to the economy of a country such as Nigeria is
enormous. Several companies, however, are experiencing declining performance
and some have even been delisted from the NSE in the last decade (Wamugo et
al.,
2014). This is contrary to the expectations of their stakeholders who span
across shareholders, employees, consumers, and government among others. Firm’s
performance is affected by asset structure. Assets are property or property
owned by the company in a certain period. Based on the way and duration, there
are two types of assets: current asset and fixed asset. The ratio of those
assets will determine the firm asset structure. The condition of the company's
assets may affect the company's funding policy. Companies that have more
current assets in their asset structure tend to use debt to meet their
financing activities, while firms with more fixed assets tend to use their own
capital to meet their financing activities. A firm that has suitable asset for
collateral will get loan, which will make the firm getting the source of funds
easily, which increases the firm value. The study done by Nyamasege et al,
(2014) show a result that asset structure affects positively significant on the
firm value. This study is not consistent with that of Okwo et al, (2012) which
states that asset structure does not have any effect on firm value.
In
view of the research gaps identified above, the objective of this study is to
determine the effect of asset structure on the financial performance of firms
in Nigeria.
1.3 Objectives
of the Study
The
main objective of the study is to determine the impact of asset structure on
performance of firms. The specific objective of the study are;
1. To
ascertain the effect of the ratio of non-current assets to total assets,
current asset to total assets on return on asset (ROA) of firms in Nigeria
2. To
determine the impact of the ratio of non-current assets to total assets,
current asset to total assets on return on equity (ROE) of firms in Nigeria
3. To
evaluate the effect of the ratio of non-current assets to total assets, current
asset to total assets on net profit margin (PM) of firms in Nigeria
1.4 Research
Questions
The
study attempts to answer the following questions,
1. What
is the effect of the ratio of non-current assets to total assets, current asset
to total assets on return on asset of firms in Nigeria?
2. What
is the impact of the ratio of non-current assets to total assets, current asset
to total assets on return on equity of firms in Nigeria?
3. To
what level does the ratio of non-current assets to total assets, current asset
to total assets affect net profit margin of firms in Nigeria?
1.5 Research
Hypotheses
The
following null hypothesis form the major focus of the study;
H01: There is no significant effect of the ratio
of non-current assets to total assets, current asset to total assets on return
on asset of firms in Nigeria.
H02: There is no
significant effect of the ratio of non-current assets to total assets, current
asset to total assets on return on equity of firms in Nigeria is not
significant
H03: The ratio of non-current
assets to total assets, current asset to total assets does not have significant
effect on net profit margin of firms in Nigeria.
1.6 Significance
of the Study
The
beneficiaries of this study are:
Financiers
To
evaluate a firm’s creditworthiness for possible future financial assistance if
need be. This study would also be of
benefit for creditors to do comparisons between the individual enterprises
within the sector under study.
Investors
Investors
are interested in evaluating the efficacy with which management is utilizing
the firm’s assets for the success of the business. Besides, this study will
furnish investors with information and necessary updates to plan the financing
of their firms and in making sound investment and managerial decisions.
Scholars
and Researchers
Scholars
and researchers will find this study useful if they wish to use the findings as
a basis for current and further research on capital structure theories,
focusing on developing countries. This study will serve as reference material
for future researchers on this topic
1.7 Scope of the Study
The
study was restricted to selected manufacturing firms listed in the Nigerian
Stock Exchange. For effective analysis, this research covers the period 2009–2018.
The study focuses on the variables, the ratio of fixed assets to total assets, ratio
of current asset to total asset, return on asset, return on equity and net
profit margin.
1.8 Operational
Definition of Terms
Asset Structure: Asset structure is defined as the proportions of various types of asset held by a firm as shown in
the balance sheet.
Asset
An asset is any resource owned by the business. Anything
tangible or intangible that can be owned or controlled to produce value and
that is held by a company to produce positive economic value is an asset.
Simply stated, assets represent value of ownership that can be converted into
cash.
Fixed Asset
Fixed assets, also known as tangible assets or property,
plant and equipment, is a term used in accounting for assets and property that
cannot easily be converted into cash. This can be compared with current assets
such as cash or bank accounts, described as liquid assets.
Current Asset
A current asset is any asset which can reasonably be expected
to be sold, consumed, or exhausted through the normal operations of a business
within the current fiscal year or operating cycle.
Financial
Performance
According
to a shareholder, a firm’s financial performance is a measure of how better a
shareholder is at the end of the period in question compared to how the
shareholder was at the beginning of the same period. The shareholder state can
be determined using ratios derived from a firm’s financial statements or using
a firm’s data as reflected in the stock market prices (Aguzzi, 2007).
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