Shareholders’ Wealth and Debt- Equity Mix of Quoted Companies in Nigeria

Abstract

The study examined the relationship between shareholders’ wealth and debt-equity mix of quoted companies in Nigeria. The study was based on a panel data set from 1997 to 2011 comprising sixty non – financial companies. The study specified two panel regression models. Two measures of shareholders’ wealth: Return on Equity (ROE) and Earnings per Share (EPS) were taken as the dependent variables respectively. The principal explanatory variable for each of the models was Debt Ratio (DR). The results of the study conform to our a-priori expectation that there is a significant negative relationship between shareholders’ wealth and debt-equity mix of quoted companies in Nigeria. This is not unexpected considering the inactive debt market in Nigeria, the dominance of the money market in the Nigerian financial system, the shallow nature of the Nigerian capital market, the buy-hold syndrome of the Nigerian investors and the macro economic instability in the country. It was recommended that adequate fiscal policies, relevant capital market institutional and legal framework should be put in place. These measures, we believe, will enhance the development of the Nigerian capital market and create a more conducive environment for business to thrive.