MODERATING EFFECT OF COST OF CAPITAL IN THE RELATIONSHIP BETWEEN CAPITAL STRUCTURE AND FINANCIAL PERFORMANCE OF LISTED FIRMS IN NIGERIA

Abstract This study investigates the impact of capital structure on the financial performance of listed companies in Nigeria, with a specific focus on the moderating role of the cost of capital. Despite the acknowledged importance of capital structure, empirical evidence remains limited within the Nigerian business context, hindering the development of effective financial strategies. Employing a longitudinal panel and ex-post facto research design, the study analyzed data from 132 listed companies that consistently published audited annual financial reports between 2014 and 2023. Panel multiple regression analysis, utilizing E-views 13, was used to examine the relationships between variables. The findings reveal a slight positive impact of short-term debt on return on assets (ROA), while long-term debt demonstrates a significant positive effect on ROA. Conversely, the cost of capital exhibits a negligible negative influence on ROA. Overall, the results suggest that capital structure has a limited direct impact on financial performance in the studied context. Based on these findings, the study recommends that listed companies optimize their debt structure by reducing reliance on short-term liabilities and increasing long-term debt to enhance financial flexibility and improve viability.