EFFECT OF CAPITAL STRUCTURE ON FINANCIAL PERFORMANCE OF THE OIL AND GAS SECTOR IN NIGERIA

Abstract

The subject of capital structure is very germane to financial management and to the successful operation of any firms. It is the decision of financing business operations with either shareholders’ equity or debts or proportional combination of both. The main purpose of this study is to investigate debt to equity ratio that will optimise the financial performance of downstream oil and gas firms in Nigeria. The sample size was selected using the simple random sampling method. Seven (7) out of ten (10) downstream oil and gas firms listed in the Nigerian Stock Exchange, taking the period 2014 to 2018 were selected for this study. Secondary data were extracted from the annual reports and accounts of the firms. The study formulated four hypotheses and descriptive statistics and linear regression were used for its analysis. The descriptive statistics provide summary statistics of the variables. Subsequently, results of the regression analysis revealed that though the whole four independent variables have a positive relationship with the Return on Asset (ROA); total debt to total assets ratio (p-value=0.018) and total debt to total equity ratio (p-value=0.000) have significant effect on the financial performance while long-term debt to total assets (p-value=0.875) and short-term debt to total assets (p-value=0.152) have no significant effect on the financial performance of the downstream oil and gas firms in Nigeria. Summarily, the result reveals a positive relationship with ROA and the variables representing capital structure have a significant relationship with ROA with the p-value of 0.005. It is recommended for future researchers to carry out similar studies in multiple sectors.