The impact of capital structure on the profitability of pharmaceutical companies in Nigeria

Abstract

This study sought to investigate the effect of capital structure on profitability (measured by return on asset) of firms in Nigeria with specific focus on the pharmaceutical companies between 2011 and 2020 financial year. In this study, two specific objectives, research questions and hypotheses were formulated. Ex-post facto research design was utilized while secondary sources of data derived from the pooled data collected from annual financial report of four listed pharmaceutical companies. The data collected was analysed using pooled ordinary least square regression analysis, however the study also conducted some preliminary analysis such as descriptive statistics and correlation analysis. The study reveals that about 30.9% of the total variation in their return on asset is explained by variations in the capital structure variables captured in the model. In addition, Total debt ratio (TDR) was found to be negatively related to profitability of pharmaceutical firms in Nigeria; while Debt equity ratio (DER) was
positively related to profitability of pharmaceutical firms in Nigeria. The study recommends that pharmaceuticals companies in Nigeria should use the less level of debt because it decreases their profitability. Rather, the firms should rely more on their internal source of finance because it is the cheap and reliable source of finance.