CAPITAL STRUCTURE AND FINANCIAL PERFORMANCE OF LISTED PHARMACEUTICAL COMPANIES IN NIGERIA

Abstract

A firm’s capital structure is the mix of its’ financial resources available for carrying on the business and is a major determinant on how the business operates. The capital structure of a firm is described as the components of its sources of financing, broadly categorized as equity and debt finance, Brockington (1990). In general, pharmaceutical companies can choose among many alternative capital structures. According to finance theory, the capital structure affect firm’s cost of capital and consequently financial performance (Abor, 2005).Capital Structure is referred to as the ratio of different kinds of securities raised by a firm as long-term finance and debt. These securities include external equity (Ordinary shares), internal equity (Retained earnings), and preference shares, (Margaritis&Psillaki, 2010). Ordinary share capital is raised from the public from the sale of ordinary shares to the shareholders. This finance is available to limited companies. It is a permanent finance as the owner/shareholder cannot recall this money except under liquidation. It is thus a base on which other finances are raised. Ordinary share capital carries a return that is variable that is the ordinary dividends. These shares carry voting rights and can influence the company’s decision-making process at the AGM. The ordinary shares carry the highest risk in the company (high securities) because of uncertainty of return. Ordinary shares cannot ensure refund and have residual claims.