purpose of this study is to examine the evaluation of capital structure and
dividend policy decision and firms performance on the Nigerian stock exchange.
Strong statistical evidence based on the analyzed to confirm a strong
statistical relationship between capital structure and earning per share in Nigeria stock
exchange couldn’t be found. The main statistical tool employed in this work is
Pearson’s Correlation Techniques and the result reveals that there is
significant relationship between retained earnings of listed firms and firms
performance on Nigeria
stock exchange. The study concluded that gearing increase
Chapter One: Introduction
1.1 Background to the Study
1.2 Statement of Problem
1.3 Research Questions
1.4 Objective of the Study
1.5 Statement of Hypothesis(es)
1.6 Significance of the Study
1.7 Scope of the Study
1.8 Limitations of the Study
1.9 Definitions of Terms
Two: Review of Related
2.2 Conceptual Explanations
2.3 Theoretical Framework
2.4 Recent Theories on Optimal Capital Structure
2.5 Review of Empirical Studies
Three: Research Method and
3.2 Research Design
3.3 Description of Population of the Study
3.4 Sample Size
3.5 Sampling Technique
3.6 Sources of Data Collection
3.7 Method of Data Presentation
3.8 Method of Data Analysis
Four: Data Presentation,
Analysis and Interpretation
4.2 Presentation of Data
4.3 Data Analysis
4.4 Hypothesis Testing
Five: Summary of Findings,
Conclusion and Recommendations
5.2 Summary of Findings
Background to the Study
survival of the long run objective of any business organization depends to a
large extent on the decision it takes toward its capital structure and dividend
policies. The overall objective of any business organization is to maximize the
firm has to invest in some of its profitable venture which promises the highest
returns with the shareholders fund and other fixed interest debt finance.
decision of the firm to employ debt finance came with certain element of risk
toward the shareholders. The proportion of debt to owners equity employed will
have some effect on their earnings either positively or negatively depending on
the shareholder decision towards risk.
impact of capital structure and dividend policy on corporate performance has
been unsettled one. Some writers are of the opinion that the way and manner in
which the operation of a firm is financed does not affect the value of the firm
while some believe that the use of debt in the financing mix will magnify the
value of the firm if the financial manager will be indifferent to the source of
finance that appropriate capital structure is a critical decision for any
business organization. The decision is important not only because of the need
to maximize return to various organizational constituencies but also because of
the impact such a decision has on the organization’s ability to survive in its
competitive environment. The prevailing argument originally developed by Modigliani
and Miller (1989) is that an optimal capital structure exist which balance the
risk of bankruptcy with the tax saving of debt. It is important to note that
dividend is not a contractual obligation of the firm to its shareholder or debt
providers. The amount of the dividend, if any, is rested on management’s best
options to use the income. The board of directors who are ultimately
responsible for setting dividend policy can chose not to pay any dividend using
the firm’s earnings to acquire additional asset instead.
policy is the principle use in determining what portion of earning should be
paid out as divided during the period, the divided policy may be expressed in
the follow objectives such as target payout ratio; a divided policy table give
the tax earning on the firm available to it legal constraint and the need to
satisfy the shareholders must be decided whether or not to pay divided. If yes,
‘what proportion of its total earning should be paid out and what form of
divided payout will be in the best interest of the firm?
every business, capital structure is of primary importance. It is to show how a
company finances its operations through some combination of equity; debt etc. A
firm’s capital structure is the composition of its liabilities, The capital
structure indicate how the company finances its entire operations and expansion
by utilizing different financial resources whether it is from equity capital,
debt capital, or other forms of capital such as vendor financing,
financing is a process of selling goods or products before paying the bill to
the vendor. It doesn’t cost anything to the company; instead it gives more
return on investments. It should be noted that capital structure includes
equity capital which is the money invested into a company in exchange for an
ownership interest in that company. Usually, equity capital has two kinds,
first is the contributed capital. This is the money which the shareholders
invest in the business. Secondly, are the retained earnings which represent the
profit or earning of the company that is being kept by the company to use as
additional fund for growth, acquisitions and expansions?
form of capital in the business is the debt capital through long term debt and
specific short term debt. This money which is a part of company’s capital
structure is borrowed or lent from the other banks or financial institutions to
finance the order requirement of the business.
(1989), entrepreneurs usually start their companies with other stockholders in
the business in order to contribute to the increase of the business capital. In
this connection, the management of the company is authorized to use the
collected money capital to invest in the factories or plant and to purchase
equipments and supplies. The stockholders use their money to purchase share
stock in the company. In this way, each stockholder owns a share or percentage
of the company through investing their money as part of the capital of the
dividend policy refers to the company’s regulation and guidelines on dividend
payments to the shareholders of the organization. Having a dividend policy is
very essentials for both the company and the shareholders, it is easier to
monitor and figure out the impact of the dividend policy in the entire
operation of the business.
dividends are payments made by the corporation to its shareholder when a
company earns a profit or surplus and such money can be used as retained
corporations retain a portion of the shareholders profit and whatever money
left will be paid to the share holders as dividends. Equally important, there
are various kinds of dividend payouts. Firstly is the cash dividend, this is
product of cash avail ability and cash planning. The cash account and the
reserves account of a company will be reduced be when the cash dividend is
paid. Second is the stock or scrip dividend it involves the payment of a
dividend in the form of extra shares rather than cash as an alternative to pay
out cash dividends during a year, a company may choose to pay a stock dividend.
Thirdly, Scrip issue bonus issue this is the capitalization of the reserves of
a company by the issue of additional shares to existing shareholders in
proportion to their holding, usually at no cost.
Statement of Problem
The fundamental objective of the firm is to maximize
shareholder wealth and the market value of the firm. For firm to achieve this,
the firm capital structure need to be at its optimum level, hence capital
structure have an impact on firm financial performance. The dividend policy
decision adopted by a firm also have a significant impact on the firm value.
Over the years for a firm to have an optimum capital structure and design a
dividend policy decision that will maximize the firms value is a critical factor
to be considered. Many corporate organizations fail to grow and survive due to
poor capital structure and dividend decision policy adopted. The study is to
carryout an investigation on the impact of capital structure and dividend
policy decision on corporate performance in Nigeria and to design policy
implications from the findings on the study.
In order to achieve the objective of this study, the
following questions require answers;
earnings related to firm’s quoted on the Nigerian stock exchange performance?
To what extent
does optimum capital structure contribute to firm’s market value?
dividend policy decision affects the performance of firms?
How does the
trend of finance mix of firms influence the performance of the firms?
Objective of the Study
main objective of this study is to examine the impact of capital structure and
dividend policy decision on corporate performance in Nigeria.
To determine the relationship between
firms listed on Nigeria Stock Exchange (NSE) retain earnings and performance of
To examine the extent to which optimum
capital structure do contribute to firms market value.
To find out if dividend policy decision
affects the performance of firms in Nigeria.
To determine how the trend of finance
mix influence the performance of firms in Nigeria.
Statement of Hypotheses
The following hypotheses are formulated and to
carryout the investigation systematically.
HO: There is no significant relationship between retained earnings of listed
firms and firms performance.
HI: There is significant relationship between retained earnings of listed
firms and firms performance.
HO: There is no extent to which optimum capital structure does contribute to
firms market value.
HI: There is extent to which optimum capital structure do contribute to firms
HO: Dividend policy does not affect the performance of firms in Nigeria.
HI: Dividend policy affects the performance of firms in Nigeria.
Significance of the Study
the general recognition of the importance of financing mix and dividend policy
decision, it is an irony of history to note that enough empirical test have not
been carried out to prove or disprove either the capital structure or divided
policy theories propounded many years ago. This is especially so in all
developing countries like Nigeria where much work need to be done in this area.
All over the world capital structure and dividend policy are areas where
financial management has consistently failed. It is against this background
that this study aims at testing the validity or otherwise of this conflicting
is therefore hoped that the result of this study will contribute significantly
to the debate as to whether capital structure and divided policy decision have
impact on corporate performance in Nigeria.
Scope of the Study
study is to examine the effect of capital structure and dividend policy
decision on corporate performance in Nigeria.
coverage: The majority of the companies in Nigeria are based in Lagos,
the fourteen companies used in this study are all Lagos based.
frame: The companies must be in Nigeria stock exchange and the
result obtained cover a period of five years (2009 – 2013). In order to easy
the problem of data collected, all the firms examined are quoted in Nigeria
sample size of 14 is used in this study.
Limitations of the Study
factors limit the extent and depth of this research work. These limitations
include non-availability of adequate literature and the refusal of management
to furnish some important documents/data for more detailed analysis on grounds
Again, the availability of textbooks that deals on
relevant areas of the study is another constraint. There were only few,
textbooks to consult in the school library and most of them are obsolete. The
researcher had to look outside the polytechnic library for relevant
materials such as journals write-up
Since the research work was done during the normal
course of study, it was not possible to undertake an elaborate study.
Finally, we must point out that our main instrument
of data collection was through personal interview and no matter how it is
constructed it is subjected to individual bias and subjected to judgment.
Definition of Terms
This can be defined as
something owned which provides ongoing services. It also refers to as money, property
and other valuables which collectively represent the wealth of an individual or
Structure: This refers to the balance between the
assets and liabilities of a company, the nature of its assets and the
composition of its borrowings. Assets may be fixed or current while borrowing
may be long term or short term.
Performance: This is the area of business
intelligence involved with monitoring and managing an organization’s
performance according to key performance indicators such as revenue, return on
investment, overhead and operational costs.
is the sum of money paid regularly by a company to its shareholders out of its
This is the regulations and guidelines that companies develop and implement as
the means of arranging to make dividend payments to the shareholders.
part of the share capital of a company owned by ordinary shareholders.
Earnings: This refers to the portion of net income, which is
retained by the corporation rather than distributed to its owners as dividends.