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ABSTRACT
This study empirically investigate the relationship between capital structure and firm performance in the oil and gas sector in Nigeria using two financial performance measures- returns on asset (ROA). A sample of five (5) listed oil and gas firms are examined between 2011 and 2019 using descriptive statistics, correlation analysis and panel multivariate analysis. The empirical results revealed the existence of a significant relationship between capital structure and firm financial performance in the oil and gas sector in Nigeria. Specifically, the empirical results reveal the following findings: Ratio of long-term debt to equity ratio has a negative and significant effect on the financial performance of oil and gas firms, using both the ROA in Nigeria. Ratio of long-term debt to total asset has a negative and significant effect on the financial performance of oil and gas firms in Nigeria, using ROA as financial performance measure. Tax deductibility is positively related to firm financial performance of oil and gas firms, albeit a weak impact, using ROA as performances measure. Firm size is positively and significantly related to ROA of oil and gas firms in Nigeria. Base on the empirical findings of this study, the following policy recommendations are suggested for policy action: Financial and investment managers should institute sound and efficient capital structure policies in oil and gas firms to enhance their financial performance. Managers of oil and gas firms should ensure that the proportion of long term debt to equity and long term debt to total asset do not grow to unsustainable levels, to avoid the resulting diminishing effect on the financial performance of oil and gas firms in Nigeria. Policies to encourage large oil and gas firm size through greater productivity should be implemented in Nigeria. Efficient and unwieldy tax policies that will encourage firm performance, particularly with respect to corporate income tax deduction should be developed in order to enhance firm performance of oil and gas firms in Nigeria.
