Absorption Costing vs Variable Costing

4463 Words Apr 4th, 2016 18 Pages
www.sciedu.ca/ijfr

International Journal of Financial Research

Vol. 5, No. 1; 2014

Shareholders’ Wealth and Debt- Equity Mix of Quoted Companies in
Nigeria
Amos O. Arowoshegbe1 & Francis Kehinde Emeni2
1

Department of Accounting, Ambrose Alli University, Ekpoma, Edo State, Nigeria

2

Department of Accounting, University of Benin, Benin City, Edo State, Nigeria

Correspondence: Amos O. Arowoshegbe Ph.D; ACA., Department of Accounting, Ambrose Alli University,
Ekpoma, Edo State, Nigeria. Tel: 234-80-3742-2421. E-mail: futona4christ2@gmail.com
Received: October 15, 2013 doi:10.5430/ijfr.v5n1p107 Accepted: October 31, 2013

Online Published: January 10, 2014

URL: http://dx.doi.org/10.5430/ijfr.v5n1p107

Abstract
The study examined the
…show more content…
The maximization of shareholders’ wealth is a function of the value of the firm. The objective of the study is to examine the relationship of the use of debt in the capital structure of quoted companies in Nigeria to the wealth of shareholders.

Published by Sciedu Press

107

ISSN 1923-4023

E-ISSN 1923-4031

www.sciedu.ca/ijfr

International Journal of Financial Research

Vol. 5, No. 1; 2014

2. Literature Review
Capital structure theories are concerned with explaining how the mix of debt and equity in a firm’s capital structure influences its market value. The debt-equity mix has an overall implication for the shareholders’ earnings and risk which in turn affects the cost of capital and financial performance of the company and invariably the wealth of the company. Since the seminal paper by Modigliani and Miller (1958) and their proposition that the value of the firm is independent of its debt – equity mix, two basic theories that have dominated the capital structure literature are the
“trade-off theory” and the “pecking order theory”.
Which theory shall we take seriously? Naturally, opinions differ. Many theories of capital structure have been proposed. But only a few seems to have many advocates. Notably, most corporate finance textbooks point to the
“tradeoff theory” in which taxation and deadweight bankruptcy costs are key points. Myers (1984) proposed the
“pecking order theory” in which there is a financing hierarchy of retained earnings, debt and then
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