EXAMINING THE MODERATING ROLE OF ASSET TANGIBILITY IN THE LEVERAGE PERFORMANCE RELATIONSHIP OF NIGERIA’S INDUSTRIAL GOODS SECTOR
Keywords:
Asset Tangibility, Capital Structure, Firm Performance, Industrial Goods Sector, Panel Data, Nigeria
Abstract
This study investigates the moderating role of asset tangibility in the relationship between capital structure and firm performance among listed industrial goods firms in Nigeria over the period 2014 to 2023. Drawing on pecking order and trade-off theories, the research evaluates whether varying debt compositions, such as the short-term debt, long-term debt, total debt, and debt-to-equity ratios, affect financial performance (proxied by return on assets) differently depending on the level of tangible assets. Panel data derived from audited financial reports of 10 firms were analyzed using Generalized Least Squares (GLS) random effects estimation. The findings indicate that neither leverage variables nor their interactions with asset tangibility exert statistically significant effects on firm performance. These outcomes suggest that, within Nigeria’s industrial goods sector, asset tangibility alone may not enhance the efficiency of debt utilization. The study contributes to capital structure literature by contextualizing firm-specific attributes in emerging markets and underscores the need for more nuanced financial strategies and supportive regulatory frameworks.
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References
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Degryse, H., de Goeij, P., & Kappert, P. (2012). The impact of firm and industry characteristics on small firms’ capital structure. Small Business Economics, 38(4), 431–447.
Egbunike, A. P., & Okerekeoti, C. U. (2021). The effect of capital structure on firm performance in Nigeria. Cogent Business & Management, 8(1), 1919312.
Frank, M. Z., & Goyal, V. K. (2003). Testing the pecking order theory of capital structure. Journal of Financial Economics, 67(2), 217–248.
Frank, M. Z., & Goyal, V. K. (2009). Capital structure decisions: Which factors are reliably important? Financial Management, 38(1), 1–37.
Ghosh, S., & Maji, S. G. (2014). Firm characteristics and capital structure decisions: A study on Indian manufacturing companies. Vision, 18(4), 343–350.
Gordon, M. J. (1959). Dividends, earnings, and stock prices. The Review of Economics and Statistics, 41(2), 99–105.
Harris, M., & Raviv, A. (1991). The theory of capital structure. The Journal of Finance, 46(1), 297–355.
Harris, M., & Raviv, A. (1990). Capital structure and the informational role of debt. The Journal of Finance, 45(2), 321–349.
Hasan, I., & Zhou, M. (2020). Capital structure and corporate performance: Evidence from China. Journal of Asian Economics, 67, 101203.
Jensen, M. C., & Meckling, W. H. (1976). Theory of the firm: Managerial behavior, agency costs, and ownership structure. Journal of Financial Economics, 3(4), 305–360.
Kayo, E. K., & Kimura, H. (2011). Hierarchical determinants of capital structure. Journal of Banking & Finance, 35(2), 358–371.
Kisgen, D. J. (2006). Credit ratings and capital structure. Journal of Finance, 61(3), 1035–1072.
Leary, M. T., & Roberts, M. R. (2005). Do firms rebalance their capital structures? Journal of Finance, 60(6), 2575–2619.
Lipson, M. L., & Mortal, S. (2009). Liquidity and capital structure. Journal of Financial Markets, 12(4), 611–644.
Lodhi, R. N., & Mansoor, M. (2015). Impact of capital structure on profitability of non-financial firms in Pakistan. Journal of Management and Research, 2(2), 71–89.
Mahdavi, G., & Daryaei, A. A. (2018). Corporate governance and firm performance in emerging markets: The moderating role of ownership structure. International Journal of Finance & Economics, 23(3), 311–326.
Myers, S. C. (1984). The capital structure puzzle. The Journal of Finance, 39(3), 575–592.
Myers, S. C., & Majluf, N. S. (1984). Corporate financing and investment decisions when firms have information that investors do not have. Journal of Financial Economics, 13(2), 187–221.
Ozkan, A. (2001). Determinants of capital structure and adjustment to long-run target: Evidence from UK company panel data. Journal of Business Finance & Accounting, 28(1–2), 175–198.
Pandey, I. M. (2015). Financial management (11th ed.). Vikas Publishing.
Rajan, R. G., & Zingales, L. (1995). What do we know about capital structure? Some evidence from international data. The Journal of Finance, 50(5), 1421–1460.
Scott, J. H. (1976). A theory of optimal capital structure. The Bell Journal of Economics, 7(1), 33–54.
Sheikh, N. A., & Wang, Z. (2011). Impact of capital structure on performance of listed non-financial firms in Pakistan. International Journal of Commerce and Management, 21(2), 112–131.
Titman, S., & Wessels, R. (1988). The determinants of capital structure choice. The Journal of Finance, 43(1), 1–19.
Velnampy, T., & Nimalathasan, B. (2010). Capital structure and firm performance: Evidence from Sri Lanka. International Journal of Business and Management, 5(3), 57–64.
Abdulkarim, U. F., Mohammed, L., Mohammed, A. N., & Abubakar, S. (2019). The effect of firm specific characteristics on financial leverage of quoted diversified companies in Nigeria. Malaysian Management Journal, 23(December), 27–46.
Adebayo, M. O., & Olayemi, B. O. (2023). Financial structure and firm performance in emerging markets. Journal of Finance and Economic Research, 11(1).
Adegbite, E., & Nakajima, C. (2021). Corporate governance and financial management in sub-Saharan Africa. Accounting Forum, 45(2), 147–168.
Adegoyega, R. A. (2024). Environmental Auditing: Influence of Asset Tangibility and Financial Leverage of Quoted Manufacturing Companies in Nigeria. International Journal of Management Science and Business Analysis Research, 6(7).
Agyemang, G., & Castellini, M. (2021). Leveraging and performance: Evidence from listed firms in Ghana. Journal of African Business, 22(1), 45–63.
Ahmed, A., & Audu, J. (2021). Debt-equity dynamics and profitability in sub-Saharan Africa. African Review of Economics and Finance, 13(3).
Aivazian, V., Ge, Y., & Qiu, J. (2015). The impact of leverage on firm investment: Canadian evidence. Journal of Corporate Finance, 17(5), 909–931.
Ajayi, S. O., Oladipo, A. A., & Gbadamosi, A. (2021). Asset structure and firm value in Nigerian manufacturing. Global Business Review, 22(6).
Akinleye, G. T., & Olanipekun, C. T. (2024). Financial Leverage and Performance of Manufacturing Firms in Nigeria. International Journal of Research and Innovation in Social Science, 8(11), 3344–3359.
Akinlo, O. (2011). Determinants of capital structure: Evidence from Nigerian panel data. African Economic and Business Review, 9(1), 1–16.
Akoto, R. K., Duku, R., & Owusu, C. (2023). Capital structure and firm performance nexus: Evidence from sub-Saharan Africa using a dynamic panel threshold model. Research in International Business and Finance, 66, 102095.
Ali, M., & Sadaqat, S. (2021). The role of short-term debt in driving profitability. Cogent Economics & Finance, 9(1).
Al-Najjar, B., & Belghitar, Y. (2022). Firm characteristics and capital structure: New evidence from emerging markets. International Review of Financial Analysis, 82, 102165.
Asongu, S. A., Nwachukwu, J. C., & Orim, S. M. I. (2022). The finance–growth poverty triangle in Africa. World Development, 151, 105766.
Baltagi, B. H. (2021). Econometric Analysis of Panel Data (6th ed.). Wiley.
Baltagi, B. H. (2021). Econometric Analysis of Panel Data (6th ed.). Springer.
Barney, J. B. (1991). Firm resources and sustained competitive advantage. Journal of Management, 17(1), 99–120.
Berger, A. N., & Udell, G. F. (1990). Collateral, loan quality, and bank risk. Journal of Monetary Economics, 25(1), 21–42.
Bevan, A. A., & Danbolt, J. (2002). Capital structure and its determinants in the UK—a decompositional analysis. Applied Financial Economics, 12(3), 159–170.
Bhaduri, S. N. (2020). Determinants of capital structure choice: A study of Indian firms. Applied Economics Letters, 27(3), 232–237.
Booth, L., Aivazian, V., Demirguc-Kunt, A., & Maksimovic, V. (2001). Capital structures in developing countries. The Journal of Finance, 56(1), 87–130.
Chakraborty, I. (2010). Capital structure in an emerging stock market: The case of India. Research in International Business and Finance, 24(3), 295–314.
Chen, J. J., & Chen, M. H. (2011). Asset tangibility and capital structure: Evidence from Taiwanese listed companies. Review of Quantitative Finance and Accounting, 37(3), 333–351.
Chen, J., Liu, J., & Zou, H. (2020). Tangible assets and financial flexibility: Evidence from Chinese listed companies. Emerging Markets Finance and Trade, 56(11), 2641–2657.
Chen, Y., Harford, J., & Lin, C. (2020). Financial flexibility and corporate investment: Evidence from cash holdings and debt capacity. Journal of Financial Economics, 137(3), 770–796.
Chukwu, C. A., & Ekezie, C. A. (2021). Total debt and firm sustainability: Evidence from Nigeria. International Journal of Economics and Financial Issues, 11(3).
De Jong, A., Kabir, R., & Nguyen, T. T. (2008). Capital structure around the world: The roles of firm- and country-specific determinants. Journal of Banking & Finance, 32(9), 1954–1969.
de Jong, A., Kabir, R., & Nguyen, T. T. (2011). Capital structure around the world: The roles of firm- and country-specific determinants. Journal of Banking & Finance, 35(2), 476–489.
Degryse, H., de Goeij, P., & Kappert, P. (2012). The impact of firm and industry characteristics on small firms’ capital structure. Small Business Economics, 38(4), 431–447.
Egbunike, A. P., & Okerekeoti, C. U. (2021). The effect of capital structure on firm performance in Nigeria. Cogent Business & Management, 8(1), 1919312.
Frank, M. Z., & Goyal, V. K. (2003). Testing the pecking order theory of capital structure. Journal of Financial Economics, 67(2), 217–248.
Frank, M. Z., & Goyal, V. K. (2009). Capital structure decisions: Which factors are reliably important? Financial Management, 38(1), 1–37.
Ghosh, S., & Maji, S. G. (2014). Firm characteristics and capital structure decisions: A study on Indian manufacturing companies. Vision, 18(4), 343–350.
Gordon, M. J. (1959). Dividends, earnings, and stock prices. The Review of Economics and Statistics, 41(2), 99–105.
Harris, M., & Raviv, A. (1991). The theory of capital structure. The Journal of Finance, 46(1), 297–355.
Harris, M., & Raviv, A. (1990). Capital structure and the informational role of debt. The Journal of Finance, 45(2), 321–349.
Hasan, I., & Zhou, M. (2020). Capital structure and corporate performance: Evidence from China. Journal of Asian Economics, 67, 101203.
Jensen, M. C., & Meckling, W. H. (1976). Theory of the firm: Managerial behavior, agency costs, and ownership structure. Journal of Financial Economics, 3(4), 305–360.
Kayo, E. K., & Kimura, H. (2011). Hierarchical determinants of capital structure. Journal of Banking & Finance, 35(2), 358–371.
Kisgen, D. J. (2006). Credit ratings and capital structure. Journal of Finance, 61(3), 1035–1072.
Leary, M. T., & Roberts, M. R. (2005). Do firms rebalance their capital structures? Journal of Finance, 60(6), 2575–2619.
Lipson, M. L., & Mortal, S. (2009). Liquidity and capital structure. Journal of Financial Markets, 12(4), 611–644.
Lodhi, R. N., & Mansoor, M. (2015). Impact of capital structure on profitability of non-financial firms in Pakistan. Journal of Management and Research, 2(2), 71–89.
Mahdavi, G., & Daryaei, A. A. (2018). Corporate governance and firm performance in emerging markets: The moderating role of ownership structure. International Journal of Finance & Economics, 23(3), 311–326.
Myers, S. C. (1984). The capital structure puzzle. The Journal of Finance, 39(3), 575–592.
Myers, S. C., & Majluf, N. S. (1984). Corporate financing and investment decisions when firms have information that investors do not have. Journal of Financial Economics, 13(2), 187–221.
Ozkan, A. (2001). Determinants of capital structure and adjustment to long-run target: Evidence from UK company panel data. Journal of Business Finance & Accounting, 28(1–2), 175–198.
Pandey, I. M. (2015). Financial management (11th ed.). Vikas Publishing.
Rajan, R. G., & Zingales, L. (1995). What do we know about capital structure? Some evidence from international data. The Journal of Finance, 50(5), 1421–1460.
Scott, J. H. (1976). A theory of optimal capital structure. The Bell Journal of Economics, 7(1), 33–54.
Sheikh, N. A., & Wang, Z. (2011). Impact of capital structure on performance of listed non-financial firms in Pakistan. International Journal of Commerce and Management, 21(2), 112–131.
Titman, S., & Wessels, R. (1988). The determinants of capital structure choice. The Journal of Finance, 43(1), 1–19.
Velnampy, T., & Nimalathasan, B. (2010). Capital structure and firm performance: Evidence from Sri Lanka. International Journal of Business and Management, 5(3), 57–64.
Published
2024-10-31
How to Cite
Ibrahim, A. (2024). EXAMINING THE MODERATING ROLE OF ASSET TANGIBILITY IN THE LEVERAGE PERFORMANCE RELATIONSHIP OF NIGERIA’S INDUSTRIAL GOODS SECTOR. J-MACC : Journal of Management and Accounting, 7(2), 318-336. https://doi.org/https://doi.org/10.52166/j-macc.v7i2.11779
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Articles
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