Prime Equity, Leveraged Structure and Corporate Earnings in Nigeria: A Comparative AnalysisPrime Equity, Leveraged Structure and Corporate Earnings in Nigeria: A Comparative Analysis

Lucky Anyike Lucky; Akobundu Charles Echewodo

doi:10.46281/afbr.v1i1.72

Lucky Anyike Lucky Department of Banking and Finance, Rivers State University, Nigeria
Akobundu Charles Echewodo Department of Finance and Banking, University of Port-Harcourt, Nigeria

DOI: https://doi.org/10.46281/afbr.v1i1.72

Keywords: Corporate Earnings, Debt Equity Ratio, Leveraged Structure.

Abstract

This study examined prime equity, leveraged structure and corporate earnings in Nigeria. The objective was to examine if equity value and debt equity ratio have relationship with earnings per share of quoted deposit money banks. Earnings per share were modeled as the function of equity value and debt equity ratio. After cross examination of the validity of the pooled effect, fixed effect and the random effect, the study accepts the fixed effect model. The study found that 74.2% and 66.7% variation on earnings per share can be traced to equity value. The β coefficient indicates that of equity value has positive impact on earnings per share, while Debt equity ratio on of deposit money banks can explain 68.9% and 59.9% variation. The β coefficient proves that debt equity ratio have positive impact on earnings per share of the quoted deposit money banks. From the above results we conclude that equity value have greater impact on earnings per share than debt equity ratio. We recommend that management should ensure optimal capital structure of the quoted deposit money banks.

References

Anyamaobi, C., & Lucky, A. L., (2017). Corporate Characteristics and Value Creation: A Panel Data Evidence of Nigeria Quoted Manufacturing Firms. World Journal of Finance and Investment Research, 2(1), 31-49.
Akande, J.O. (2013). Is Debt a Blessing or Curse? An Empirical Analysis of Some Nigerian Firms. Journal of Business and Organizational Development, 5 (2), 74- 107.
Akani, H. W., & Lucky, A. L., (2016) Capital Structure and Shareholders Value of Commercial Banks in Nigeria: A Multi-Variate Study Analysis. IIARD International Journal of Economics and Business Management, 2 (5), 1 – 24.
Akinmulegun, S.O., (2012). The Effect of Financial Leverage on Corporate Performance of Some Selected Companies in Nigeria. Canadian Social Science, 8 (1), 85- 91.
Al-Taani, K., (2013). The Relationship between Capital Structure and Firm Performance:Evidence from Jordan. Journal of Finance and Accounting, 1 (3), 41- 45.
Arowoshegbe, A. O., & Emeni, F.K., (2014). Shareholders’ Wealth and Debt –Equity Mix of Quoted Companies in Nigeria. International Journal of Financial Research, 5 (1), 107- 113.
Braunstein, Yale (2002). Cost of Capital Study for Telecommunications Utilities, Working paper, School of Information Management and Systems, University of California at Berkeley, 9(45) 78-98
Chinaemerem, O.C., & Anthony, O. (2012). Impact of Capital Structure on the Financial Performance of Nigerian Firms. Arabian Journal of Business and Management Review (OMAN Chapter). 1 (12), 43- 61.
David, F.D., & Olorunfemi, S., (2010). Capital Structure and Corporate Performance in Nigerian Petroleum Industry: Panel Data Analysis. Journal of Mathematics and Statistics, 6 (2), 168- 173.
Ebaid, E.I., (2009). The Impact of Capital Structure Choice on Firm Performance: Empirical Evidence from Egypt. The Journal of Risk Finance, 10 (5), 477- 487.
Fosu, S., (2013). Capital Structure, Product Market Competition and Firm Performance: Evidence from South Africa. Working Paper No. 13/11. 1- 13.
Gweji, M.O., & Karanja, J., (2014). Effect of Financial Leverage on Financial Performance of Deposit Taking Savings and Credit Co-operative in Kenya. International Journal of Academic Research in Accounting, Finance and Management Sciences, 4 (2), 180- 188.
Iavorskyi, M. (2013). The Impact of Capital Structure on Firm Performance: Evidence from Ukraine (Unpublished Master Thesis), Kyiv School of Economics.
Innocent, E.C., Ikechukwu, A.C., & Nnagbogu, E.K. (2014). The Effect of Financial Leverage On Financial Performance: Evidence of Quoted Pharmaceutical Companies in Nigeria. IOSR Journal of Economics and Finance, 5 (3), 17- 25.
Kareem, A., (2006). Testing and assessing the relationship between capital cost and stock market returns, an empirical study on industrial companies listed at Amman stock exchange for the period 1994 – 2004, Humanities Journal, 4(29) 1-24.
Laurent, W., (2002). Leverage and Corporate Performance: A Frontier Efficiency Analysis. Universite Robert Schuman Institud’ Etudes Politiques, France, 1- 20.
Laurent, W., (2008). Leverage and Corporate Performance: Does Institutional Environment Matter? Journal of Small Business Economics, 30 (3), 251- 265.
Leon, S. A. J., (2013). The Impact of Capital Structure on Financial Performance of the Listed Manufacturing Firms in Sri Lanka. Global Journal of Commerce and Management Perspective, 2 (5), 56- 62.
Maina, L., & Kondongo, O., (2013). Capital Structure and Financial Performance in Kenya: Evidence from Firms Listed at the Nairobi Securities Exchange. Paper Presented at the Jomo Kenyatta University of Science & Technology Research Conference. Kenya.
Modigliani, F., & Miller, M. (1963). Corporate Income Taxes and the Cost of Capital: A Correction. American Economic Review, 5(3), 443- 453.
Modigliani, F., & Miller, M. H., (1958). The Cost of Capital, Corporation Finance and the Theory of Investment. The American Economic Review, 48 (3), 261- 297.
Modiglinni , F., & Miller M. H., (1958), The Cost of Capital, Corporation Finance and the Theory of Investment. American Economic Review, 4(8), 261-297.
Muritala, T.A., (2012). An Empirical Analysis of Capital Structure on Firms Performance in Nigeria. International Journal of Advances in Management and Economics, 1 (5), 116- 124.
Myers, S. C., (2001). Capital Structure. Journal of Economic Perspectives, 15 (2), 81- 102.
Pandey, I.M., (2010). Financial Management (10th ed.). New Delhi, India: Vikas Publishing House PVT Ltd.
Rehman, S.S.F.U., (2013). Relationship between Financial Leverage and Financial Performance: Empirical Evidence of Listed Sugar Companies of Pakistan. Global Journal of Management and Business Research Finance, 13 (8), 33- 40.
Saleh, W., (2007) Earning-to-Price, Dividend-to-Price, Firm Growth and Stock Returns, Jordan Journals of Business Administration, 5(3), 59-79
Thaddeus, E.O., & Chigbu, E. E., (2012). Analysis of Effect of Financing Leverage on Bank Performance: Evidence from Nigeria. Journal of Public Administration and Governance, 2 (4), 178- 187.
Tian, G.G., & Zeitun, R., (2007). Capital Structure and Corporate Performance: Evidence from Jordan. Australian, Accounting, Business and Finance Journal, 1(4), 40- 53.
Ujah, U., & Brusa, O., (2013). The Effect of Financial Leverage and Cash Flow Volatility on Earnings Management. Texas A & M International University.
Velnampy, T., & Niresh, J. A., (2012). The Relationship between Capital Structure and Profitability. Global Journal of Management and Business Research, 12 (13), 67- 73.