Equity Financing and Value of Quoted Small and Medium Scale Enterprises: Empirical Investigation of MM Preposition in Nigeria
Vol.6 Issue 2
This study examined the relationship between equity financing and market value of quoted small and medium scale enterprises in Nigeria. The objective was to test the preposition of Modigliani and Miller on capital structure irrelevance. Secondary data obtained from financial statement of 10 quoted small and medium scale enterprises from 2009 – 2018. Market value was modeled as the function of retained earnings, equity capital to total capital ratio, equity capital to total assets ratio and share capital. Panel data methods were employed while the fixed and random effects models were used as estimation technique at 5% level of significance. Fixed effects, random effects and pooled estimates were tested while the Hausman test was used to determine the best fit. Panel unit roots and panel cointegration analysis were conducted on the study. The study found that retained earnings, share capital, equity to total capital ratio and equity capital to total assets ratio account for 31.2 percent variation in the market value of the quoted SMEs. The panel unit root test proved that all the variables are stationary at first differences and conclude that the variables are integrated in the order of 1(I). The cointegration test justifies the presence of long run relationship between debt capital and enterprise value within the periods covered in this study. The Granger causality test indicated no causality of among the variables in the model. From the findings, the study concludes that there is no significant relationship between equity to total capital ratio and market value of quoted SMEs in Nigeria. There is significant relationship between retained earnings and net book value of quoted SMEs market vale value in Nigeria, there is significant relationship between share capital and net book value of quoted SMEs value in Nigeria, there is no significant relationship between equity to total capital ratio and net book value of quoted SMEs market value in Nigeria and that there is no significant relationship between equity to total capital ratio and net book value of quoted SMEs market value in Nigeria. The study recommends that the management of the SMEs should work very hard to optimize the capital structure in order to increase the returns on equity and assets. They can do that through ensuring that their capital structure is optimal.
