THE EFFECT OF CAPITAL STRUCTURE ON THE PERFORMANCE OF QUOTED INSURANCE COMPANIES IN NIGERIA
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ABSTRACT
The study examined the impact of capital structure on the profitability of selected quoted insurance companies in Nigeria between 2011 and 2016. The data were obtained from the published financial reports of selected firms. The panel data analysis was employed in the study.
The findings showed that: Total debt ratio (β= 0.07; p>0.05) and debt-to-equity ratio (β= 0.01; p>0.05) had insignificant positive impact on return on asset of selected quoted insurance firms in Nigeria; The combined effect of total debt ratio and debt-to-equity ratio is statistically insignificant on return on asset of selected quoted insurance firms in Nigeria (F=2.65; p>0.05); Total debt ratio (β= 0.14; p>0.05) and debt-to-equity ratio (β= 0.08; p>0.05) had insignificant positive impact on return on equity of selected quoted insurance firms in Nigeria; The combined effect of total debt ratio and debt-to-equity ratio is statistically insignificant on return on equity of selected quoted insurance firms in Nigeria (F= 1.95; p>0.05); Total debt ratio (β=0.08; p>0.05) had insignificant positive impact on net profit margin while debt to equity ratio (β=0.04; p<0.05) had significant positive impact on the net profit margin of selected quoted insurance firms in Nigeria;The combined effect of total debt ratio and debt-to-equity ratio is statistically insignificant on net profit margin of selected quoted insurance firms in Nigeria (F= 3.55; p<0.05).
The study concludes that capital structure in the form of debt financing and equity financing contributes to the profitability of selected quoted insurance firms in Nigeria, but its influence on profitability is negligible.
The study suggest that; Insurance companies should introduce more debt, especially long-term debt, into their capital structure mix as this will have an automatic effect of reducing the overall cost of capital as a result of its tax advantage that accrue to the organization when this decision is taken, and this often could lead to enhanced profitability of the organizations.
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