The Impact of Cost of Capital on Market Value of Manufacturing Companies in Nigeria
IWEDI, Marshal1 ONWUSIRIBE, Chigozirim Ndubuisi2 & EDEH, Mark Bekweri3
1Department of Banking and Finance Rivers State University, Port Harcourt, Nigeria
2Department of Agribusiness & Management Michael Okpara University of Agriculture Umudike, Abia State, Nigeria
3Department of Banking and Finance Rivers State University, Port Harcourt, Nigeria
Correspondence: [email protected] – [email protected]
Received: February 19, 2023 Revised: May 25, 2023 Published: August, 15, 2023
Abstract
This study examined the influence of the cost of capital on the market value of manufacturing companies that are listed on the Nigerian Exchange Group. The researchers assessed the cost of capital by considering the cost of debt, the cost of equity, and the weighted average cost of capital. The market value of the companies was approximated using their share prices. To select the sample, the researchers used purposive sampling and chose 15 manufacturing firms out of a total of 63 listed firms. They collected panel data from 2007 to 2021 from the Nigerian Exchange Limited fact sheet and the Annual Financial Reports of the companies. Descriptive and inferential statistics were employed to analyze the data, and various econometric techniques were utilized, including Unit Root Test, Co-integration Test, Granger Causality Test, and Panel data regression. To determine the most suitable analysis method, three regression techniques were employed: ordinary least square with a pool effect, fixed effect, and random effect regression. The fixed effect model was ultimately used for interpretation and discussion. The findings indicated that the impact of debt cost on market value was not substantial, whereas equity cost displayed a positive and statistically significant correlation with market value. Moreover, the study discovered no causal connection between firms’ market value and the weighted average cost of capital, implying that changes in the weighted average cost of capital did not influence the market value of the companies. Consequently, the study concludes that the cost of capital plays a significant role in determining the market value of manufacturing firms in Nigeria. It is recommended that company management thoroughly analyze all factors influencing market value and devise strategies to optimize value by effectively utilizing both debt and equity.
Keywords: Cost of capital, cost of debt, cost of equity, weighted average cost of capital, Market value, manufacturing firms, Nigeria
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DOI: https://doi.org/10.23918/ejmss.V4i1p11
Citation
Marshal, I., Ndubuisi, O. C., & Bekweri, E. M. (2023). The Impact of Cost of Capital on Market Value of Manufacturing Companies in Nigeria. Eurasian Journal of Management & Social Sciences, 4(1). https://doi.org/10.23918/ejmss.V4i1p11
©Marshal, I., Ndubuisi, O. C., & Bekweri, E. M, Published by EJMSS. This article is published under the Attribution-NonCommercial 2.0 Generic (CC BY-NC 2.0) license. Anyone may copy and redistribute the material in any medium or format, subject to full attribution to the original publication and authors. The full terms of this license may be seen at https://creativecommons.org/licenses/by-nc/2.0/
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