Abstract:
Corporate Ownership (CO) and Capital Structure (CS) are used to mitigate agency cost and
improve Firm Performance (FP). Some listed firms in Nigeria have high agency cost due
to weak nature of corporate monitoring. Most studies on corporate governance only
considered the direct effect of CS on FP and CO on FP, without considering the moderating
role of CS in the relationship between CO and FP, at aggregate and sectoral levels. This
study therefore investigated the direct effects of CS on FP, CO (foreign and domestic) on
FP, as well as the moderating effects of CS in the relationship between CO and FP, at both
aggregate and sectoral levels in Nigeria from 1990 to 2015.
The Modified Agency Cost Theory provided the framework. The theory captures CO and
CS as elements used to mitigate agency cost and improve FP. A total of 70 firms with
consistent data were selected out of 110 firms listed on the Nigerian Stock Exchange from
1990 to 2015. The CO was classified into Foreign Ownership (FO) and Domestic State
Ownership (DSO). The FO and DSO were measured as the shares of foreign and domestic
state shareholding. The estimation of the direct and moderating effects of CS in the
relationship between FO and FP, as well as DSO and FP, were done in two stages. The first
stage computed the economic measure of FP using the non-parametric Data Envelopment
Analysis method. The second stage estimated a set of structural equations simultaneously,
using the panel data instrumental variable regression technique. Diagnostic tests (Hausman
and Hansen-Sargan tests) were used to select robust estimates. All estimates were validated
at α≤0.05.
The economic measure of FP averaged 30.70%. For aggregate analysis, a 1.00% increase
in CS directly increased FP by 0.11%. Also, a 1.00% improvement in FO directly increased
FP by 0.21%, but CS moderated this effect by the same percentage. A 1.00% increase in
DSO directly reduced FP by 1.19%, while CS moderated this effect by 1.18%. The effects
of FO and DSO on FP varied across sectors. On the one hand, a 1.00% increase in FO
directly enhanced FP in consumer goods (0.47%), services (0.53%) and healthcare sector
(1.94%). However, CS moderated the effect of FO on FP by 0.43% in consumer goods,
0.51% in services, and 1.91% in healthcare sector. On the other hand, a 1.00%
improvement in DSO reduced FP by 2.30% in oil and gas and 1.39% in services sector, but
CS moderated this effect by 2.28% and 1.38%, respectively. CS improved the positive
impact of FO on FP and reduced the negative impact of DSO on FP.
Foreign and domestic state ownership had direct and moderating effects on firm
performance in Nigeria from 1990 to 2015 due to higher capital structure. Hence, foreign
and state shareholders should ensure effective corporate monitoring through higher capital
structure to improve firm performance. Government should sustain its privatisation policy
as this reduces inefficiencies and improves performance when higher capital structure is
used.
