Cost of Capital as a Deterrent to Shareholder Wealth among Listed Industrial Goods Firms in Nigeria
Charles Ndubuisi Ukoh *
UNIZIK Business School, Nnamdi Azikiwe University, Awka, Anambra State, Nigeria.
Gilbert Ogechukwu Nworie
Department of Entrepreneurship Studies, Nnamdi Azikiwe University, Awka, Anambra State, Nigeria.
*Author to whom correspondence should be addressed.
Abstract
The increasing cost of debt and equity financing in Nigeria’s competitive and unstable economic environment has created major challenges for listed industrial goods firms in sustaining operations and maximizing shareholder wealth. This study examined the effect of cost of capital as a deterrent of shareholder wealth among listed industrial goods firms in Nigeria. Specifically, it investigated the effect of debt capital cost (DCC) and equity capital cost (ECC) on shareholder return. Existing studies on cost of capital have produced mixed findings and focused largely on profitability and firm performance across different sectors, thereby leaving a conceptual, methodological, and sectoral gap in explaining shareholder wealth through shareholder return among listed industrial goods firms in Nigeria using cost of debt capital, cost of equity capital, firm size, and leverage. Hence, this study adopted an ex-post facto research design, and the population comprised eleven (11) listed industrial goods firms in Nigeria, from which nine (9) firms were selected as the sample. Secondary data were obtained from the audited annual financial statements of the sampled firms published on the Nigerian Exchange Group (from 2015-2024). Panel regression analysis using random effects Generalized Least Squares (GLS) with PCSE correction was employed to test the hypotheses. The findings revealed that: equity capital cost has a negative and significant effect on shareholder wealth (β = -1.559066, p = 0.0000); debt capital cost has a negative and significant effect on shareholder wealth (β = -11.41778, p = 0.0000). The study concluded that increasing capital costs, whether equity or debt-based, translate into diminished shareholder wealth by reducing profitability, constraining reinvestment capacity, and lowering valuation multiples in the capital market over time in markets. The study recommended that the board of directors and corporate financial managers should focus on strengthening firm-level fundamentals that influence investors’ required returns, in order to moderate the cost of equity financing. This can be achieved through enhanced corporate governance practices, improved transparency in financial reporting, and the adoption of consistent dividend policies that signal stability and reduce perceived investment risk.
Keywords: Cost of capital, shareholder wealth, industrial goods firms, Nigeria, shareholder return.