CHAPTER THREE RESEARCH METHODOLOGY 3.

1 Introduction Research methodology is the specification of procedures of collecting and analyzing the data necessary to solve the problem at hand, such that the difference between the cost of obtaining various level of accuracy and the expectation value of the information associated with each level of accuracy is minimized (TULL and Hawking, 1980). In this chapter, we shall be dealing with methodological issues such as the research design, population of study, sampling size, sample frame, sampling procedure and method of data analysis. 3.2 Research Design This is the frame work of the entire research process which ensures that the information obtained are relevant to the research problem and they are collected by objective and economic procedures. This study is designed with a view of investigating the impact of financial structure on financial performances in selected Nigerian quoted firms which include petroleum marketing and beverages industries. The research adopted the simplest methodology available to acquire relevant
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information; these include the use of annual financial statement of the firms that covers eleven (11) years period. 3.3 Population of Study The population of study is defined as a census of all items or subjects that possess the characteristics or that have knowledge of the phenomenon being studied. The population of this study is petroleum marketing and beverage industries. 3.4 Sample Size and Sampling Procedures It was projected that five (5) firms from two sectors would be selected for appraisal. The selection was carefully done using a purposive sampling technique. More so, the use of annual financial statement of the firms which spanned a period of eleven (11) years was employed. The companies were selected on the basis of the following: 1. Accessibility of information (i.e. those firms that employ debt as part of their capital structures. 2. 3. Their being in existence and quoted within the scope of the study. Availability of the annual reports
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3.5Sample Frame This is the list of the sampling units that is to be used as representative of the population in the study. The sample units include: 1. 2. 3. 4. 5. 6. 7. 8.
9.

Oando Nigeria PLC Conoil (National) Total Nigeria Plc Texaco Nigerian PLC Mobil Oil Nigeria PLC Seven Up Bottling co. PLC Nigerian Bottling co. PLC Nestle Nigeria PLC Flour Mills of Nigeria PLC Northern Nigeria Flour Mills PLC

10.

3.6 Model Specification The issue of firms financial structure and financial performance had been well documented and approved from direct authorities. The relevance of financial structure allow firms to employ types of capital-debt and equity, in order to improve on their performance and extend services. The relationship among these variables was captured by the model estimation to examine the efficiency of financial structure on financial performance. The financial structure was proxied by total average of share holders fund and debt capital while on the other hand, financial

performance was proxied by earnings before tax and other measures of financial performance such as dividend per share (DPS), earnings per share (EPS), net profit to capital employed, capital employed turnover, dividend cover, debt-equity ratio and return on equity (ROE) were employed in tabular form. 3.7 Functional Approach And Definition Of Variables The functional model used in capturing the impact of share holders equity and debt structure on financial performance of the selected firms represented as profit before tax can stated in functional form as:

Y = f(X) Where Y = financial performance and is the dependent variable. This is captured by earnings before tax and X is the independent variable denoted by total average of share holders fund and debt capital. In explicit term, this can be rewritten as: PBT = o + 1Equity + 2 Debt + i Where 1 1 and 2 = = Constant term Coefficients of Equity and Debt

respectively i = Error term

The expected sign that the coefficients of the variables in the specified model above which express the direction of influence of the independent variables (equity and debt) on the dependent variable (profit before tax). It is expected that the two independent variables influence the dependent variable positively. Mathematically, this can be expressed as:

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Sources of Data Data were gathered mainly from firms annual statement of account of

various years between 1997 to 2007. Companies are selected on a purposive technique i.e. those that employ debt in their capital structure. More so, data were also obtained from institutional agencies e.g. central bank of Nigeria, Federal office of statistic, Nigeria stock exchange. 3.9 Method Of Data Analysis The statistical method employed in this study includes the simple percentage and distribution method expressed in tabular form i.e. table analysis/financial ratios. For this study, the statistical tool employed in the ordinary least square (OLS) regression technique. The OLS technique allow to determine the relationship between the dependent and independent variable as contained in the specified model. It shows how the firms financial performance relies on their financial structure.

3.9.1 Criteria for Evaluation These are referred to as the test used to ascertain the statistical significance of the estimated values for the parameters in the model. They are used to evaluate the reliability or otherwise of the parameter estimates obtained through the OLS at a particular level of significance (mostly 5%). There are several tests commonly used evaluating the statistical and econometrical significance but the ones used in this study are outlined and illustrated below: Coefficient of Determination (R2) This is used in judging the explanatory power of the coefficient of linear regression. It would show the percentage of total variations in dependent variable that is explained for by the independent variable(s). The closer the value of the R2 to one, the better for the explanatory power of the model. The Student T Test This is an alternative but complementary test to the standard error approach explained above. The decision to accept or reject the null hypothesis is based on the coefficient obtained as well as its sampling distribution (Gujarati and Sangeetha, 2007). Under this test, the null hypothesis is rejected if the value of the obtained coefficient lies within the
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critical region or that its probability value be less than 0.05, the significance value. Otherwise it is statistically insignificant. F-Ratio Unlike the standard error test, the F ratio is used to test for the overall significance of all parameters in the estimated model. The decision to accept or reject the null hypothesis that is for statistical significance, the probability value of the F ratio must be less than 5%, the specified level of significance. 3.10 Limitation to Study The study is limited to the information collected through annual financial statement of purposively selected firms. It is also necessary to note that the data contained in the annual reports and accounts were arrived on the basis of different accounting policies, but it is believed that there are regulations governing the preparation of published accounts of quoted companies.