This study examines the effect of capital structure and financial stability on the financial performance of selected insurance companies in Nigeria, focusing on the return on capital employed (ROCE) as the performance measure. The study adopted an ex-post facto research design, and data were collected from the annual reports of the selected insurance firms. Using panel data analysis, the impact of debt-to-equity ratio, total debt, and total equity on ROCE was assessed. The findings revealed that the debt-to-equity ratio had a significant effect on ROCE, indicating that the balance between debt and equity influenced profitability and capital efficiency. Total debt also significantly affected ROCE, suggesting that excessive borrowing increased financial risk, while strategic debt usage enhanced returns. Furthermore, total equity showed a significant positive relationship with ROCE. The study concludes that a balanced capital structure was essential for sustaining profitability and recommended moderate debt levels and strengthened equity financing strategies. Therefore, it was recommended that insurance firms were encouraged to maintain a well-balanced capital structure, ensuring debt was used moderately to avoid excessive interest burdens and financial strain.
Odufisan et al. (Thu,) studied this question.