FINANCIAL STRUCTURE AND THE VALUE OF THE FIRM: A CROSS-SECTIONAL INDUSTRY STUDY OF NIGERIAN QUOTED FIRMS
ABSTRACT
The controversy over the optimal
capital structure question focuses on the effect of the addition of
non-equity financing on the quality of the firm’s earnings and on the
rate at which the earnings are capitalized. Theory posits that capital
structure of a firm affects its shareholders‘return and risk, and
consequently, the market value of shares, hence its significance in
corporate financing decisions. This study therefore empirically examines
the impact of financial structure decision on the value of Nigerian
quoted firms. Cross-sectional time series data of 72 Nigerian quoted
firms, for the 1997-2007 periods, were collated from the published
annual reports and accounts of the companies, and from the Nigerian
Stock Exchange Fact Books of the same period. Five hypotheses were
proposed for the study, while the ordinary least square (OLS),
fixed-effects (FE) and the gerneralised least square (GLS) regression
were used on pooled and panel data to validate the hypotheses and to
estimate the relationship between financial leverage and the different
measures of firm value in Nigeria. The normalised values of earnings per
share (EPS), profit after tax (PAT), price earning ratio (P/E ratio),
earnings yield and dividend yields were used as the regressands; while
total, long-term and short-term leverage measures alongside size and
growth were used as regressors. Descriptive statistics on both the
regressands and the regressors were also computed to complement the
regression results. The results showed that, the sampled firms lever
their financing, on the average by 56.7 percent, with current
liabilities making up to 50.53 percent, while long-term liabilities make
up the remaining 6.17 percent. They were however some variations in the
use of leverage across industrial sectors. Secondly, the results also
show that the financing leverage were made up of 0.0486 of capital
market funds and 0.9514 money market funds; they were however some
variations across industry groups, with 0.1302 standard deviation.
Thirdly, as regards the impact of financial leverage on the value of the
firm, the regression results showed evidence of a positive relationship
between financial leverage and the different measures of firm value, at
the .05 level of significance, with the exception of the long-term
liability measure which was negatively but insignificantly related with
most firm value proxies. The total and short-term liability measures had
coefficients of 0.074 and 0.068 respectively with PAT, while the
long-term measure showed a coefficient of -0.105, at a 0.05 level of
significance. For the EPS measure, the coefficients were 0.0065, 0.039
and -0.136 for the total, short-term and long-term liability measures
respectively. The PER measure showed the beta coefficients to be, 0.028,
0.026 and -0.003 for the total, short-term and long-term liability
measures respectively. They were however, negative but significant
relationship between earnings yield and dividend yield with financial
leverage, having beta coefficients of -0.038 and -0.150 respectively, at
a 0.05 level of significance. Fourthly, the above results validate
previous empirical result that there is a positive relationship between
leverage (when measured by short-term liabilities) and firm value, while
it is negative when measured by long-term debts. It also provides
empirical validation to the view that Nigerian firms are low levered.
Furthermore, the results validate empirical findings in other corporate
jurisdictions that there exist industrial patterns of financial
leverage. Finally, it was found that the plausible reason for the low
leverage of Nigerian quoted firms is attributable to the non development
of the market for corporate financing in Nigeria.
CHAPTER ONE
1.0 INTRODUCTION
1.1 Background of the Study
One of the central issues in both the
theory and practice of financial management is the problem of
determining the optimal capital structure of the firm. Given capital
market conditions and the array of investment opportunities, is there
some optimal composition of liabilities and equity at which the value of
the firm will be maximized? (Wippern, 1966). Extant theories of capital
structure and financing decisions of firms suggest that there is an
optimum financial structure, upon which a firm maximizes her value
(Myers, 1984; Masulis, 1983; Taggart, 1977; Miao, 2005; Wippern, 1966;
Miller, 1977). They also suggest that debt-equity mix has implications
for the shareholders‘earnings and risk, which in turn, affects the cost
of capital and the market value of the firm (Pandey, 2002).
The composition of the various means by
which a firm is financed is known as the financial structure of that
firm (Pandey, 2002). A revision of the financial structure could be
achieved by increasing creditors‘claims, issuing more equities or
retaining earnings. The difference between financial structure and
capital structure lie in the tenor of the fixed commitment financing.
Traditionally, short-term borrowings are excluded from the list of
methods of financing a firm‘s capital expenditure (Pandey, 2002). This
has however influenced the use of the term capital structure in
literature. However it should be borne in mind that the management of
both long-term and short-term financing is equally important to the
firm, though they may differ theoretically – the neglect of either could
spell doom for any firm. In most cases, the lack of working capital has
resulted to liquidation of firms due to illiquidity. Both short-term
and long-term financing have effects on the risks and returns of the
firm.
Furthermore, it should be borne in mind
that availability of sources of financing are jurisdictional, being
influenced by the market conditions prevalent in each corporate
jurisdiction. Empirical studies to this end abound. Borio (1990) for
instance, classifies Japanese and Continental Europe firms as high
leveraged firms, while the Anglo-American firms were classified as low
leveraged firms. Rutherford (1988) using Organisation of Economic Co-
operation and Development (OECD) data presented evidence that firms in
France, Germany and Japan are more highly levered than United States,
and United Kingdom firms. The economics explanation to the differences
in the pattern of leverage in the different corporate jurisdictions
could be the extent and nature of financial intermediation, differences
in institutional structures governing bankruptcy and debt negotiation,
and differences in the market for corporate control (Borio, 1990,
Frankel and Montgomery, 1991 and Berglof, 1990). There were however,
deviations in empirical findings by Kertler (1986) and Mayer and
Alexander (1990), due mainly to the nature of their leverage measures.
They found that there were no major differences in the extent of
leverage between Japan and United States firms; and that large German
firms borrow less than UK firms (see also Rajan and Zingalese, 1995).
The above phenomena could be noticed
among Nigerian firms. Due mainly to some institutional, market and
cultural constraints, Nigerian firms patronize the short-term end of the
financial markets more than the longer-term end. It was also noticed
that most of the firms that closed shop in Nigeria, did so for lack of
working capital, rather than long-term finances (Glen and Pinto, 1994;
Adelagan, 2007; Ezeoha, 2007). Furthermore, Booth, Aivazian,
Demirguc-Kunt, and Maksimovic (2001), notes that the major difference
between developing and developed economies is that developing ones have
substantially lower amounts of long-term debts. This also was consistent
with the findings of Demirguc-Kunt, and Maksimovic (1999). This has the
implication of limiting the explanatory power of capital structure in
developing economies, if short-term debts are removed from the
aggregates. This informs why this follow the pattern of other studies in
using total debt to total capitalisation as the major measure of
leverage, while having other measures as subsidiary test variables.
Both theory and empirics show that
financial structure has some influence on the firm value. Financial
leverage at first sight provides the potentials of increasing both
returns and risks for shareholders (Wippern, 1966; Masulis, 1983; and
Rajan and Zingalese, 1995). According to Pandey (2002) the role of
financial leverage in magnifying the return of the shareholders is
premised on the assumptions that the fixed-charges funds can be obtained
at a lower cost than the firm‘s rate of return on net assets.
The controversy over the optimal capital
structure question focuses on the effect of the addition of non-equity
financing on the quality of the firm’s earnings and, thus, on the rate
at which the earnings are capitalized. Does the addition of a moderate
amount of fixed commitment financing result in demands by shareholders
for an increase in the risk premium component of equity yields
sufficient to offset the incremental earnings derived from the new
financing? If investors respond in this manner, the value of the firm
remains unaffected by changes in financial structure and it may be
concluded that financial structure is of no consequence in a firm’s
attempts to achieve the objective of wealth maximization for its
stockholders. If, however, the increase in yield demanded by
shareholders is either more or less than sufficient to offset the
advantages of incremental earnings derived from additional non-equity
financing, then financial structure will have an important effect on the
value of the firm. In this latter case, financial structure decisions
become important variables in pursuing the goal of maximization of
shareholder wealth (Wippern, 1966).
The long term debt-equity mix of a firm
is called its capital structure, while the term financial structure is
used in a broader sense to include equity and all liabilities of the
firm (ibid). Theory posits that capital structure affects
shareholders‘return and risk, and consequently, the market value of
shares (see for example, Masulis, 1983; Modigliani and Miller, 1958,
1963 and 1966; Miao, 2005; and Pandey, 2002), hence its significance on
corporate financing decision.
A complex set of decisions creates a
firm‘s capital structure. Capital structure dictates the funding sources
tapped by the company and allocates risks and control rights to various
parties. Pursued wisely, capital structure decisions should enhance
value in financial markets (Chaplinsky, 1996). The modern traditional
view of financial structure builds on M-M‘s theory, but concludes that a
firm can pick an optimal mix of debt and equity by focusing on the
tradeoffs between the tax benefits of debt and the potential costs of
financial distress.
Conventional capital structure theories
(Myers, 1977; Jensen, 1986) suggest that firms‘optimal capital structure
is related to costs and benefits associated with debt and equity
financing. With the optimal debt-to-equity mix, firms could achieve the
lowest financing costs and consequently increase the value of
shareholders (Sheel, 1994). Although the optimal mix varies from
industry to industry (Kim, 1997) and from country to country (Wald,
1999), the financing structure puzzle is even more complicated in
developing countries, where markets do not always work efficiently and
controls and institutional constraints abound (Glen and Pinto, 1994). It
is further reported that the banking system of the developing countries
are incapable of providing the needed resources for private sector
expansion, due mainly to government interventions, uncertain
macroeconomic environment, and high reserve requirements which leaves
the banks with little percentage of their deposits to lend freely.
Previous researchers have constantly
found capital structure theories applicable when explaining financing
decisions (Tang and Jang, 2006). Since Modigliani and Miller‘s (1958)
capital structure irrelevance finding, researchers have searched for
capital structure explanations primarily within the context of firm
boundaries that are determined by explicit contracts among stakeholders
including shareholders, debt holders, managers, and the government. The
research in this stream of literature provides important insights into
the effects of taxes, bankruptcy costs, information asymmetries, agency
issues, and other frictions on corporate leverage decisions (Kale and
Shahrur, 2007).
There is an extensive theoretical
literature concerning optimal capital structure (see for example
Modigliani and Miller, 1958 & 1963; Kraus and Litzenberger, 1973;
Scott, 1976; Miller, 1977; and DeAngelo and Masulis, 1980, Miao, 2005;
Bosshardt, 2003). However, there is little empirical evidence of a
relationship between changes in capital structure and firm value
(Excepting for a few like, Wippern, 1966; Masulis, 1983; Miao, 2005,
Abor, 2005, Adelagan, 2007). In the best known test of an optimal
capital structure model, Miller-Modigliani (Miller and Modigliani, 1963)
reported evidence of a positive relationship between firm value and
leverage which they attributed to a debt tax shield effect. According to
Masulis (1983), their results appear suspect, because of seeming
statistical problems they encountered when attempting to adjust for
differences in the firms’ asset structures. Secondly, since only
regulated firms were examined, there was also some concern that their
empirical findings were influenced by some other extraneous variables
like the regulatory environment in which these firms operated. There
appears to be no strong evidence of a relationship between a firm’s
value and the size of its debt tax shield uncovered since the
Miller-Modigliani (1963) study.
Other capital structure studies have also
focused on the tax advantages of debt (Modigliani and Miller, 1963),
the choice of debt levels as a signal of firm quality (Ross, 1977;
Leland and Pyle, 1977), the use of debt as an anti-takeover device
(Harris and Raviv, 1988), agency costs of debts (Jensen and Meckling,
1976; Myers, 1977) and the role of debt in restricting managerial
discretion (Jensen, 1986). The major work on the relationship between
financial structure and the value of the firm are those by Nielsen
(1961), Wippern (1964 & 1966), and Masilus (1983) which were mainly
based on the United States environment. Yet the results of these studies
generated further controversies, either because of the different
variables used or by the statistical treatment of such variables. When
checked against the main stream study by M-M (1963), there are usually
some disagreements.
The controversy whether there is an
optimum financing structure upon which a firm can maximize her value has
endured over the years. Some normative views have also been presented
in literature, like the traditional static trade-off theory, the M-M
Non-relevance theory (1958), with latter modifications; Donaldson (1961)
and Myers (1984) Pecking Order theory, and Miller (1977) Neutral
Mutation theory, Jensen and Meckling (1976) Agency Cost theory. The
normative solutions as presented by the various theories hinge on
efficiency, the investors, and the agents perception. The controversy
over the Optimal Capital Structure question focuses on the effect of the
addition of non-equity financing on the quality of the firm‘s earnings
and, thus, on the rate at which the earnings are capitalized (Wippern,
1966).
There appears to be a surfeit of
empirical studies on the determinants of capital structure, financing
decisions, and related issues (see for example, Titman and Wessels,
1998; Brounen, Jang and Koedijik, 2006; Booth, Aivazian, Demirguc-kunt,
and Maksimovic, 2001; Rajan and Zingales, 1995; Taggart, 1977; etc).
Studies on the effects of these decisions on the value of the firm and
shareholders wealth are relatively scanty, both in terms of
country-specific and in terms of industry-specific studies. According to
Elkelish and Marshall (2007) there seems to be no agreement among
researchers about the impact of these decisions on firm value in
practice. The famous “irrelevance” propositions by Modigliani and Miller
(1958), which state that “the overall market value of any firm is
completely independent of its capital structure, and that the expected
rate of return on the common stock of a geared firm increases in
proportion to the debt/equity ratio”, have received some empirical
support (See Carpentier and Suret, 2001). However, these propositions
are widely claimed to be non applicable in practice due to the existence
of some capital market imperfections (See Bradley et al., 1984).
However, financial structure is known to
have different effects and impacts on a firm. For example, financial
structure has been known to have impact on firms‘financial constraints
(Baum, Schafer and Talavera, 2009), on firms‘growth (Liu and Hsu, 2004),
on firms profitability (Abor, 2005), on firm value (Wippern, 1966;
Adelagan, 2007; Masulis, 1983).
What emerges from the discussion is that
the plethora of empirical studies already carried out on the subject
matter, have not laid to rest, the controversies generated by the
initial propositions. There is therefore a justification and need to
join the empirical search by focusing on a cross-sectional industry study of the relationships between financial structure and the value of firms in Nigeria (this is achieved by studying selected firms from fifteen industries quoted in the Nigerian Stock Exchange).
This study is somewhat peculiar for some
obvious reasons. First, there has been no known empirical study on the
subject matter for the Nigerian jurisdiction, though Nigeria occupies a
place of pride in the West African sub-region and African region
generally. Secondly Nigeria poses a puzzle on the corporate financing
pattern and corporate productivity, if viewed from the perspectives of
liberal tax shield, lavish investment incentives and a friendly income
tax regime (Adelagan, 2007; FIRS, 2002 as amended).
1.2 Statement of Problem
The importance of corporate financial
decisions on the value of the firm has been at the heart of academic
debate over recent decades. After the seminal work of Modigliani and
Miller (1958 and 1963), which was based on assumptions of an efficient
capital market (a frictionless world), much of subsequent research has
examined the effect of both capital structure and dividend policy
decisions when the reality of capital market imperfections are
introduced. These imperfections include a wide range of situations such
as taxes; transaction costs, asymmetric information, and more recently,
agency costs (see Iturriaga and Crisostomo, 2008). There is an extensive
theoretical literature concerning optimal capital structure. However,
there is little empirical evidence of a relation between changes in
capital structure and firm value. In the best known test of an optimal
capital structure model, Miller-Modigliani (1963) reported evidence of a
positive relationship between firm value and leverage which they
attributed to a debt tax shield effect. (Masulis, 1983).
Our knowledge of capital structure,
according to Booth, Aivazian, Dermiguc-kunt and Maksimovic (2001), has
mostly been derived from data from developed economies that have similar
institutional framework. Financial decisions in developing countries
are bound to be somehow different, being influenced by the peculiarities
of their institutional framework and market conditions (Mayer, 1990),
which are far from being perfect. Nigeria is obviously a developing
country, with weak and often unstable institutional framework and an
imperfect financial market. Added to this, is the fact that empirical
studies relating to financial structure of firms in the Nigerian
corporate jurisdiction is not only scanty but also not frontally
directed on the subject matter. Isolated studies on defined influences
on corporate financing decisions could be found, but detailed
investigations on the impact of these decisions on the value of the firm
is yet to be addressed.
Significant progress has been made in the
development of the theory of financial structure issues and decision
framework. The basis for important departures from the original
Modigliani and Miller (1958 and 1963) theorems on the irrelevance of
capital structure on the value of firms has become clearer. However, not
enough is known about the empirical relevance of the different
theories. Empirical work has unearthed some stylized facts on capital
structure choice, but such evidence is largely based on the experience
of firms in the United States, and it is not at all clear how these
facts relate to different theoretical models. Without testing the
robustness of these findings outside the environment in which they were
uncovered, it is hard to determine whether these empirical findings are
merely spurious correlations, let alone whether they support one theory
or another (Rajan and Zingalese, 1995).
Few studies have also been carried out to
prove that there are links between financial structure and firm value
(Nielson, 1962; Wippern, 1964 and 1966; Masulis, 1983). Hence Rajan and
Zingalese (1995) had decried the dearth of empirical studies on the
effects financial structure decision on the firm, which as earlier noted
appears to be scanty, both in country-specific and industry-specific
studies. A more disturbing phenomenon is the apparent non-existence of
developing countries studies, on the vexed issue of relationship between
financial structure and firm value.
Be that as it may, it is a recognized
theoretical fact that the primary motive of a firm in using financial
leverage is to boost the shareholders‘return under favourable economic
conditions. This is based on the assumption that fixed-commitment
financing can be obtained at a cost lower than the firm‘s rate of return
on net assets (Pandey, 2002). That being the case, to what extent
does the Nigerian firms lever their financial structure? How has
financial leverage of Nigerian firms impacted on the equity holders‟ returns, and the total value of the firm? This forms the basic challenge of this study.
Firms that are listed in the Nigerian
Stock Exchange are found to be financed by both equity and debt
(Adelagan, 2007). However statistics further show that Nigerian firms do
not patronize the bond market (which represents the longer-term end of
the capital market) intensively – For instance out of 194 listed
companies in 2001, 49 companies patronized the bond market; while 46 out
of the 205 listed companies in 2007, patronized the bond market (NSE,
2001, 2007 and Adelagan 2007). The conclusion to be drawn from this is
that the financing pattern of Nigerian firms is biased; in favour of the
short-term end of the market for corporate finance. This could have
been responsible for the low contribution of the manufacturing sector to
the gross domestic product (GDP) of Nigeria over the years, when
considered from the perspective of the theory of financial leverage.
Adelagan (2007), indicated that the contribution of the Nigerian
manufacturing sector to the GDP has not been impressive, accounting for
about 8.4% of the GDP in 1984, sliding to 4.2% in 1996 and 6.0% in 2000.
The more recent trend shows the following rates: 3.50% to 3.80% for the
years 2004 to 2007 respectively (CBN, 2007).
Could the above empirical evidence be as a
result of the financing pattern of Nigerian firms, or some factors
other than the financial structure? It is the desire of the researcher
to investigate the impact of corporate financial structure on the value
of Nigerian quoted firms.
1.3 Objectives of the Study
This study is set, on the whole, to
empirically examine the impact of financial structure decision on the
value of Nigerian quoted firms; the value of the firm being measured by
the financial performance in terms of general income return on capital
employed and profit after tax (ROCE and PAT), firm‘s solvency ratios,
and firm‘s performance in terms of value to the investors price earning
ratio (PE ratio), earnings per share (EPS), and Earnings yield. Below
therefore are the specific objectives:
- To determine the extent to which Nigerian quoted firms lever their financing.
- To empirically determine the characteristics of the financing leverage of Nigerian quoted firms.
- To determine the impact of financial leverage on the value of Nigerian quoted firms.
- To compare the results of the study with previous theoretical and empirical studies.
- To identify plausible reasons for any noticed phenomena in the financing structure of Nigerian quoted firms.
1.4 Research Questions
In the bid to achieve the objectives of this study, the researcher will attempt to answer the following questions:
- To what extent does quoted firms in Nigeria lever their financing?
- What are the major characteristics of the financing structure quoted firms in Nigerian?
- What are the impacts of financial leverage on the value of Nigerian quoted firms?
- To what extent is the country-specific study on the impact of financial structure on the value of the firm, in Nigeria consistent with prior studies?
- What could have been responsible for the characteristics of the financing structure of Nigerian quoted firms?
1.5 Research Hypotheses
In the bid to achieve the objectives of the study the following hypotheses will be validated for the study, as stated below:
- The Profit after Tax (PAT) of Nigerian firms is negatively related to the degree of firm‘s financial leverage.
- The earnings yield of Nigerian firms is negatively but significantly related to the degree of firm‘s financial leverage.
- The dividend yield of Nigerian firms is negatively related to the degree of firm‘s financial leverage.
- The price earning (PE) ratio of Nigerian firms are negatively related to the degree of financial leverage of the firm.
- The earnings per share of Nigerian firms are negatively related to the degree of financial leverage of the firm.
1.6 Scope of the study
Since this study is based on quoted firms
in the Nigerian corporate jurisdiction, the scope of the study will be
drawn from a number of quoted firms in the Nigerian Stock Exchange
(NSE), while the variables of interest is as those stated above, and the
time period of the study will cover the period between 1997 and 2007.
From the most recent available profile of listed firms in Nigeria, there are 35 classification of industrial groups, including foreign listing, emerging markets, and memorandum quotations. The
increase in the number of classifications was due to sector
reclassification by the NSE in 2007, which introduced one sub-sector –
Airline Services; and the renaming of ―Managed Funds‖ sub-sector to
―Other Financial Institutions‖ (NSE, 2008). The number of quoted
companies, as at 2007, stood at 212 firms.
The study used about seven-two quoted
Nigerian firms, from a cross-section of the different industrial groups
(excluding the highly regulated industrial groups like, Power and Steel,
Petroleum and the Banking Industrial groups), and for a time period
spanning from 1997 to 2007, this is in keeping with previous studies
along this line. Rajan and Zingalese (1995) used the same approach; they
eliminated financial firms such as banks and insurance companies from
their sample giving the reason of their leverage being strongly
influenced by explicit (or implicit) investor insurance schemes such as
deposit insurance. Furthermore, their debt-like liabilities are not
strictly comparable to the debt issued by non-financial firms (see also
Masulis, 1983; Miao, 2005; Abor, 2005; Pandey, 2001; Ezeoha, 2007). The
criteria for their selection are outlined in the methodology section.
The variables relevant to this study,
which are in line with prior related studies, are the various leverage
ratios (the explanatory variables) as will be discussed under
methodology, and the various performance indicators as the dependent
variables (see Allayannis, Brown, and Klapper, 2003; Wippern, 1966;
Masulis, 1983; Rajan and Zingalese, 1995; and Abor, 2005). These will be
explained further in the methodology section.
1.7 Significance of the Study
The significance of this study is
premised on two major pedestrians – first, the fact that the assumed
objective of any firm is the profit motive or/and value maximisation;
and secondly the currency of the study. There has been both theoretical
and empirical debate as to the relationship between the financial
structure of a firm and its value, whether as it relates to market value
or to the residual value. There also have been speculations as to the
impact of the financing structure of Nigeria firms, whether market based
or bank based, and of what dominant tenor, without empirical evidences.
This study therefore is going to fill the lacuna in both literature and
empirical studies regarding the impact of leverage on the value in the
Nigerian corporate jurisdiction. A study of this kind will prove to be
beneficial to the various stakeholders of the Nigerian corporate world
and to the academia in the following manner:
- The Corporate Nigeria
The result of this study, when
communicated, will enlighten the corporate decision makers of Nigeria on
the benefits/costs of their financing decision on their firms. This
will come in the light of a better understanding of the benefits/costs
of financial leverage, when proved or otherwise, that there is a
relationship between leverage and firm value in the Nigerian
jurisdiction.
- Corporate securities Holders
To the securities holders in Nigeria –
whether equity, debt or hybrid; this study will be of immense benefit,
as it will enlighten them better on their value added, in the
performance of their firms of choice. They could begin to relate firm
value with the financing structures of their target companies. Further
still, this study has the ability to enlighten the various stakeholders
of their stakes and share of the pie, in the event of failure.
- The Policy Makers
The various policy makers of the Nigerian
corporate jurisdiction should benefit immensely from this study, since
both the characteristics of the financial structure of Nigeria‘s quoted
firms, and the impact of it on their performance/value will be
empirically determined. It will enhance their policy decisions geared
towards improving the productivity and profitability of the private
sector.
- The Academia/Researchers
As earlier noted, this study is geared
towards being a trailblazer in the study of corporate financing in the
Nigerian jurisdiction, and therefore bound to instigate further
empirical search on the subject matter; even as it will give some
empirical impetus to existing notions about the financing patterns and
their impacts on Nigerian quoted firms.
1.8 Limitations of the Study
Financial Structure and Firm Value: A
Cross-Sectional Industry Study of Nigerian Quoted Firms, being wide and
topical demands both human and financial resources, which usually is
limited in supply. The following are deemed the major limitations to
this study:
Finance: The first major
constraint is financial resources, which a study of this magnitude
demands. When considered in line with volume of data to be generated and
the sample size, coupled with the fact that there is no central
depository for all the required data, the financial constraints could
then be appreciated.
Data Sourcing: The issue
of sources of data can not be overemphasized. Some relevant data for
the study are not easily available, and where they are it is at
reasonable cost. Archiaval data like the like market values of some of
the variables for the required time period (1997 – 2007), and the
availability of the respective ten-year annual reports and statement of
accounts of the sampled firms could pose some problems. Added to the
issue of sourcing data, is a dearth of financial structure-related
studies in the Nigerian jurisdiction. This posed some limitations when
comparing the results of the study with previous ones.
Operational Definition of Terms
- Financial Structure (Corporate): The various means by which a firm is financed is known as the financial structure of that firm; it could be by increasing creditors‘claims, issuing more equities or retaining earnings. This is contrasted from capital structure, which refers to the firm‘s mix of long-term sources of fund and her equity share capital (Pandey, 2002). In this study the wide definition of financial structure is adopted, while the other narrow definitions are used for further test of robustness.
- Financial Structure (System-wide): This refers to institutions, technologies and rules that govern organisation of the inter-temporal exchange of payments at a point in time, in a given financial system (Thiel, 2001).
- Value of the Firm: the total value of the firm is defined as the value of equity shares plus the value of debts. This could be approached either from the net income (NI) or net operating income (NOI) approaches. In which case the formular is V = (S+D) = Ỹ/Ko = X/Ko;
Where: V = total value of the firm;
D = market value of debt;
S = market value of equity;
Ko = cost of capital;
Ỹ = expected net income;
X = net operating income. (See Pandey, 2002 for details).
It could also be defined as the
investor‘s perception of the earnings stream of a firm‘s assets, and the
rate at which the market capitalizes these earnings stream. This could
be reported at book or market values. Commonly used indicators are,
dividend yield, earnings yield, and other investor valuation ratios (see
for instance, Modigliani and Miller, 1958; Wippern, 1966 and Masulis,
1983). 27
In this study the researcher used most of
the commonly used variables in financial structure studies, at both the
book and market values, as to achieve meaningful comparisons –
variables as stated in the statement of research hypotheses.
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Bank: Diamond Bank
After payment, send the following information to us through this email
address: enemsly@gmail.com
Topic paid for:
Amount Paid:
Date of Payment:
Teller No or Transaction ID:
Name of Depositor:
Depositor Phone Number:
Email address:
NOTE: The material will be forwarded to the email address you provided
within 24hrs after confirmation of the payment.
Thanks.
Agada Leonard E.
For: Enems Project.
For more information visit our contact page @ CONTACT US
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