Capital Structure and Firms Profitability : The Case of Emerging Financial Sector

This study investigates the effect and nature of relationship capital structure has on financial performance of firms in Nigerian pension industry which is the most recent development in Nigeria's financial sector. The population of the study are filtered to obtain 16 PFAs licensed by the PenCom. The study employs unbalance panel data of 80 observations which are drawn from sixteen Pension Funds Administrators from 2007 to 2012. The empirical result based on the 16 PFAs shows that long term liability have significant positive impact on ROE while short term liability have significant negative impact on ROE. Though long term liability is shown to have positive impact on ROA, the result is however not significant. it is also found that most of the firms in the Nigerian pension industry use zero leverage and this limit the chance of each of the firm to expand their earnings. It is concluded that firms in the pension industry underperform due to their inability to use long term debt in their capital structures. Finally, it is recommended PFAs should use debt in their capital structure so as to enhance their performances