CAPITAL MIX, POST-2020 MACROECONOMIC DISRUPTION AND SHAREHOLDER RETURNS: A DYNAMIC PANEL ANALYSIS OF RETURN ON EQUITY AND EARNINGS PER SHARE OF LISTED MANUFACTURING FIRMS IN NIGERIA

Abstract

Nigerian manufacturing firms faced an unusually severe sequence of macroeconomic shocks from 2020 onward, including pandemic-related disruption, naira devaluation and accelerating input cost inflation, yet no prior study has tested whether this disruption altered the capital mix-performance relationship. This paper tests for a structural break in the short-term debt-performance relationship specifically, the capital mix proxy most directly exposed to refinancing risk during periods of macroeconomic and credit market stress, examining return on equity and earnings per share as the two outcomes most sensitive to shareholder-facing financial risk.

Design/methodology/approach: Panel data for ten Nigerian listed manufacturing firms over 2010-2024 (150 firm-year observations) were analysed using pooled OLS, fixed effects, random effects and two-step system GMM dynamic panel estimation.  Analysis indicate that Long-term debt ratio (β = 7.610, p = 0.0001 for ROE; β = 13.912, p = 0.0001 for EPS) and total debt ratio (β = 0.147, p = 0.0001; β = 0.086, p = 0.363) contributed to both outcomes, significant for return on equity and total debt ratio's earnings per share coefficient falling short of significance, while short-term debt ratio was marginally significant for return on equity (β = 0.741, p = 0.0817) and significant for earnings per share (β = 6.993, p = 0.0001), and debt-to-equity ratio was insignificant throughout. The post-2020 interaction with short-term debt ratio was significant and negative for both outcomes, indicating that short-term debt's performance contribution weakened materially following the onset of pandemic-era macroeconomic disruption, consistent with heightened refinancing risk during a period of credit market stress. The study concludes that capital mix significantly influences the financial performance of listed Nigerian manufacturing firms, although the nature and magnitude of the effect vary across financing components and performance measures. The findings further confirm a non-linear relationship involving short-term debt and indicate that changing macroeconomic conditions can influence the effectiveness of financing decisions. It is recommended that manufacturing firms adopt flexible and context-sensitive capital structure strategies that align financing decisions with their operational needs and prevailing macroeconomic conditions.