Research Objective: This study investigates the moderating effect of financial literacy on the relationship between capital structure and corporate performance among listed non-financial firms in Nigeria.
Methodology: The study utilised a sample of 76 non-financial firms selected from a population of 112 listed on the Nigerian Stock Exchange. Secondary data were extracted from the annual accounts of these firms. The data were analysed using the random effect model to evaluate the influence of short-term debt, long-term debt, and debt-to-equity ratio on corporate performance, measured by Net Profit Margin (NPM) and Tobin's Q (Tobq).
Findings: The findings of the study revealed that:
Short-term Debt and Long-term Debt: Both forms of debt were found to be statistically insignificant when measured against NPM but showed a significant impact when assessed with Tobq.
Debt-to-Equity Ratio: Similar to the debt variables, the debt-to-equity ratio was statistically insignificant against NPM but significant against Tobq.
These results suggest that while short-term and long-term debts, as well as debt-to-equity ratios, may not strongly influence NPM, they play a critical role in determining Toba, an alternative measure of corporate performance.
Conclusion: The study concludes that short-term debt, long-term debt, and equity debt are appropriate capital sources for enhancing corporate performance when Tobq is used as the performance measure. However, firms should be cautious about using short-term debt, as it could negatively affect the firm's leverage position.
Recommendations:
Capital Structure Strategy: Firms should minimise reliance on short-term debt to avoid leverage issues and focus on creating a balanced capital structure that includes an optimal mix of long-term debt and equity.
Financial Literacy on Boards: The inclusion of financially literate members on the board of directors is crucial for making informed decisions regarding capital structure, thereby improving corporate performance.