EFFECT OF FINANCIAL STRUCTURE ON ORGANISATIONAL PERFORMANCE OF OVERVALUED LISTED FIRMS IN NIGERIA
Abstract
This study examines the effect of financial structure on organizational performance of overvalued non-financial firms listed in Nigeria. The specific objectives are to ascertain the effect of long term debt, short term debt, total debt, equity and trade credit on financial performance. Ex post facto design was considered appropriate for the study because secondary data was used. Two models were used. The dependent variables are Return on Asset (RETOA) and Return on Equity (RETOE), while the independent variables are long term debt (LDTA), short term debt (SDTA), Total debt (TDTA), Equity(EQTTA) and Trade credit (TPYTA) and two control variables: Firm size (FIRMSZ) and Firm tangibility (TFATA) were used . Secondary data were used which were collected from the published annual financial reports of the selected overvalued firms and from Fact Books published by NSE for the period of reference 2007 to 2016. The population consists of all the overvalued non-financial firms listed in NSE which is one hundred and thirteen (113) in number, but only firms that have the needed data consistently to cover all the period of our study were selected as the sample size of our study and they are twenty six (26) altogether. The statistical tools used to analyse the data are Descriptive Statistics, Pearson Moment Correlation Matrix and Regression. The correlation result shows that long term debt is negatively and weakly associated with RETOA and RETOE while short term debt is positively and weakly associated with firm performance. The regression results show that long term debt (LDTA) and short term debt (SDTA) financial structure have positive effect on both RETOA and RETOE but the effect is not statistically significant on performance of the overvalued firms in Nigeria. This may be as a result of high cost of debt financing in Nigeria. On the other hand, equity has a significant effect on performance. It showed a statistically significant positive effect on RETOA but a statistically significant negative effect on RETOE. The implication of the findings is that if equity is allowed to dominate financial structure, the firm performance will be adversely affected. Based on the findings, some recommendations were given. Firms should search and use the least expensive sources of funds for their operations so that the insignificant positive effect of long and short term debts on performance will become significant. Management of overvalued firms should avoid allowing equity financing to dominate their financial structure; it should be used in the correct proportion/combination with other financing structure for better organizational performance because trade credit has significant positive effect on RETOE.