Research Methodology and literature review structure.pptx

Literature review and with respect to a research study.

1. Theoretical Framework & Methodology Theoretical Framework Theory : Traditional theory of capital structure Equation : or Explanation : From this equation the traditional theory states that leverage has a significant impact on firm performance

2. Modification of Traditional Capital Structure Theory Various works on capital structures & firm performance modified the TCST by including certain control variables. Ahmad et al. (2012) included control variables such as Size, growth and efficiency in their research work. Equation : Or Explanation : From this equation the traditional theory states that leverage & control variables has a significant impact on firm performance

3. Research Model Explanation: Capital structure and ROI has a – ve relationship as cost of debt reduces profitability. Inflation and ROI has a – ve relationship as increase in prices increases production cost. GDP (income level) and ROI has a + ve relationship as increase in income encourage investment.

4. Hypothesis Testing HYPOTHESIS 1 H o : there is no relationship between leverage and firm’s performance H 1 : there is relationship between leverage and firm’s performance HYPOTHESIS 2 H o : there is no relationship between macroeconomic variables and firm’s performance H 1 : there is relationship between macroeconomic variables and firm’s performance

5. Data Sources Panel data was employed for achieving stated objectives Secondary data were obtained from various sources e.g : annual reviews from various companies & central bank of Nigeria. The period covered spans from year 2000 to 2010. Data analysis Techniques : For observing the relationship between variables correlation is applied The degree of significance & impact of leverage on firm performance is determined by regression estimation

6. Data Analysis & Interpretation Correlation Matrix for Highly geared companies Interpretation: Leverage is negatively correlated with ROI which means increasing debts will leads to reduce performance Inflation & GDP are positively correlated which means by changing in macroeconomic variable performance will increase. ROI LEVERAGE INFLATION GDP ROI 1 -0.1531 0.2647 0.1045 LEVERAGE 1 0.2163 -0.1257 INFLATION 1 0.2599 GDP 1

7. Data Analysis & Interpretation Correlation Matrix for lowly geared companies Interpretation : Leverage is negatively correlated with ROI which means increasing debts will leads to reduce performance Inflation & GDP are positively correlated which means by changing in macroeconomic variable performance will increase. ROI LEVERAGE INFLATION GDP ROI 1 -0.265 0.4081 0.04 LEVERAGE 1 0.2647 -0.0867 INFLATION 1 0.404 GDP 1

8. Regression Results for Highly geared firms Variables Fixed effect Coefficient P- value Constant 2.6918**** 0.0000 LEVERAGE -0.1758*** 0.0000 INFLATION 0.6393*** 0.0000 GDP 0.4425*** 0.0006 R-squared 0.6194 The R 2 Showed 61.9% variation in firm performance is due to high level of debt. Leverage has – ve impact on firm performance which means 100% increase (decrease) in leverage will reduce performance by 17.5%. Inflation & GDP has + ve impact on firm performance which means % change in both will increase in firm performance by 63% & 44% respectively.

9. Regression Results for Lowly geared firms Variables Fixed effect Coefficient P- value Constant 2.8947**** 0.0000 LEVERAGE -0.1585*** 0.0000 INFLATION 0.5542*** 0.0000 GDP 0.1181*** 0.0006 R-squared 0.6678 The R 2 Showed 66.9% variation in firm performance is due to low level of debt. Leverage has – ve impact on firm performance which means 100% increase (decrease) in leverage will reduce performance by 15.8%. Inflation & GDP has + ve impact on firm performance which means % change in both will increase in firm performance by 55% & 11% respectively.