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THE EFFECT OF CAPITAL STRUCTURE ON CORPORATE PERFORMANCES

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THE EFFECT OF CAPITAL STRUCTURE ON CORPORATE PERFORMANCES (A CASE STUDY OF SELECTED COMPANIES IN ONITSHA.

ABSTRACT

This study examined the effect of capital structure on corporate performance with reference to selected companies in Onitsha, Questionnaires and interviews were used to collect information from the selected companies in Onitsha, Anambra State.  Analysis and observations were made which gave rise to the validity of the conclusion at the end of the analysis, the major finding were:

  1. 1.                 That these is a relationship between capital structure and cost of capital.
  2. 2.                 That capital structure have significant effect on corporate performance (in terms of profitability)
  3. 3.                 That there is a high cost of capital which hinders the companies borrowing ability.

The recommendations for the study among others were:

  1. 1.                 That companies should increase their efficiency in use of debt capital.
  2. 2.                 That since cost of borrowing is so high, if a firm should be able to service fixed charges associated with senior securities and leasing, it can borrow.
  3. 3.                 That for improved performance mostly on profitability, the optimum combination of fund from varying sources which is superior to any alternative combination is necessary.

The researchers then concludes that:

  1. 1.                 The inability of many companies to adopt optimal capital structure has been increasing their cost of capital.
  2. 2.                 Due to increase in the cost of capital for may firms, they were unable to borrow in order to meet up their capital investment hence the decrease in their performance mostly on profitability.
  3. 3.                 The optimal capital structure is one in which the marginal real cost (the sum of both explicit and the implicit costs) of each available method of financing is the same.

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