FINANCE MIX AND RETURN ON ASSETS
Adegbola Olubukola Otekunrin, Eseosa David Obadiaru, Frank Dayo Awonusi, Adebanjo Joseph Falaye, Tony, Ikechukwu Nwanji, *Babatunde Taiwo Adesina,
Department of Accounting and Finance, Landmark University, Omu-Aran, Kwara State
* Department of Agriculture, Landmark University, Omu-Aran, Kwara State,
Email; otekunrin.adegbola@lmu.edu.ng; obadiaru.eseosa@lmu.edu.ng; awonusi.frank@lmu.edu.ng; falaye.adebanjo@lmu.edu.ng; nwanji.tony@lmu.edu.ng; Adesina.babatunde@lmu.edu.ng
ABSTRACT
Financing is assumed to be one of the most fundamental areas in a firm. Capital structure is of great importance because it creates an organized and flexible way of raising capital. This study investigates the influence of capital structure on Return on Asset of quoted firms in Nigeria. The study used secondary data from 2012-2016 collected from the annual reports and accounts of 15 quoted agricultural and agro-allied companies published by the Nigeria stock exchange. It has been established that there is a significant relationship between capital structure and profitability of listed firms in Nigeria before the adoption of IFRS. It is not well known based on recent research that there is a relationship between capital structure and profitability after the adoption of IFRS. Therefore, this study seeks to investigate whether there the relationship still subsists after the adoption of IFRS in Nigeria. The Regression analysis and descriptive statistics was adopted to study the relationship between capital structure proxied by Debt ratio (DR), Debt to Equity ratio (DER), Asset tangible (TANG) and Age of firm (AGE) with profitability proxied by (ROA). The findings of the study show that the debt ratio has a negative insignificant relationship with the profitability of the firm while the Debt to Equity ratio has a positive insignificant relationship with the profitability of the firm. Based on the findings of the study, the following recommendations were made; Managers should let their capital structure be as a result of the business needs however, they should not load the business with too much debt than it has the room for as this can lead to financial challenges like bankruptcy. Firms are encouraged to employ the use of inexpensive source of finance sources instead of expensive fixed interest – bearing debt.
Keywords: Capital structure, Debt ratio, Debt to equity ratio, Return on assets.