Empirical work on capital structure in emerging markets like Nigeria has been sparse and met with low explanatory power. This study investigates the determinants of capital structure in Nigeria. The population of study comprises all non-financial corporations quoted on the Nigerian Stock Exchange (NSE) for the period 1999-2014 out of which 50 companies that met the minimum data criteria were utilized. Using panel data least squares regression, modified to weighted (cross section- and period-) models, the research documents the following findings. First, the factors that exert positive influence on corporate borrowing include firm age, intangible assets and expected inflation while those factors that exert negative influence on capital structure include tangible assets, growth, size, volatility of earnings, profitability, liquidity, dividend-paying status and uniqueness of industry. The results were, at best, mixed with respect to the portability of pecking order, target adjustment, trade-off, agency and market conditions models. The pecking order beats the trade-off model based on the signs of coefficients of firm-level attributes. In order words, asymmetric information explains why smaller, less profitable, less liquid firms with more risky intangible assets and which are low dividend-payers end up relying primarily on debt financing and vice versa. The study recommends the use of leases for financially- and collateral-constrained firms as well as instruments that facilitate information symmetry in financial markets.
| Published in | Journal of Finance and Accounting (Volume 9, Issue 2) |
| DOI | 10.11648/j.jfa.20210902.13 |
| Page(s) | 36-52 |
| Creative Commons |
This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited. |
| Copyright |
Copyright © The Author(s), 2021. Published by Science Publishing Group |
Capital Structure, Firm-Specific Characteristics, Pecking Order, Trade-off
| [1] | Adelegan, O. J. (2009) Investment, financial factors and cash flow from Nigerian panel data, Journal of African Development, 11 (1): 77-108. https://ideas.repec.org/a/afe/journl/v11y2009i1p77-108.html |
| [2] | Adelegan, O. J., & Ariyo, A. (2008) Capital market imperfections and corporate investment behaviour: A switching regression approach using panel data for Nigerian manufacturing firms, Journal of Money, Investment and Banking, 2: 16-38. https://www.researchgate.net/publication/228340555_Capital_market_imperfections_and_corporate_investment_behavior_A_switching_regression_approach_using_panel_data_for_Nigerian_manufacturing_firms |
| [3] | Adenikinju, O. J. (2009) Capital structure and the risk of corporate failure: The case of Nigerian quoted companies, in Adenikinju, Busari & Olofin (eds) Applied Econometrics & Macroeconometric Modelling in Nigeria, Ibadan University Press. https://www.worldcat.org/title/applied-econometrics-and-macroeconometric-modelling-in-nigeria/oclc/642923050 |
| [4] | Adesina, J. B., Nwidobie, B. M., & Adesina, O. O. (2015) Capital structure and financial performance in Nigeria, International Journal of Business& Social Research, 5 (2): 21-31. https://ideas.repec.org/a/mir/mirbus/v5y2015i2p21-31.html |
| [5] | Adesola, W. A. (2009) Testing static trade off theory against pecking order models of capital structure in Nigerian quoted firms, Global Journal of Social Sciences, 8 (1): 61-76. https://www.ajol.info/index.php/gjss/article/view/48883 |
| [6] | Agrawal, A., & Matsa, D. (2013) Labour unemployment risk and corporate financing decisions, Journal of Financial Economics 108 (2): 449-470. https://econpapers.repec.org/article/eeejfinec/v_3a108_3ay_3a2013_3ai_3a2_3ap_3a449-470.htm |
| [7] | Akintola-Bello, O. (2001) Forecasting appropriate P/E ratio, The Nigerian Stockbroker, 2 (4): 3-9. |
| [8] | Akintola-Bello, O. (2004) The Nigerian Stock Market: Behaviour and Performance, Lagos: Arbitrage Consulting Group. |
| [9] | Akintola-Bello, O., & Adedipe, A. (1983) Estimating the cost of equity of Nigerian Firms, The Nigerian Journal of Economic and Social Studies, 20 (1): 99-106. |
| [10] | Akinyomi, O. J. (2013) Effect of capital structure on firm performance: Evidence from Nigerian manufacturing industry, International Journal of Innovative Research and Studies, 2 (9): 468-480. https://www.researchgate.net/publication/259971167_ |
| [11] | Amah, P. N. (2014) Revisiting the effects of tax and bankruptcy costs on financing decisions among publicly listed firms in Nigeria, 5th Annual International Conference on the Nigerian Financial System and Inclusive Growth and Development, 1: 183-193. |
| [12] | Amah, P. N. & Ezike, J. E. (2013) Investigating the relationship between corporate growth and debt policy: The Nigerian evidence, Journal of Money, Investment & Banking, 27: 99-113. |
| [13] | Badoer, D. C., & James, C. M. (2016) The determinants of long-term corporate debt issuances, Journal of Finance, 71 (1): 457-492. https://onlinelibrary.wiley.com/doi/abs/10.1111/jofi.12264 |
| [14] | Baker, M. (2009) Capital market-driven corporate finance, Annual Review of Financial Economics, 1: 181-205. https://doi.org/10.1146/annurev.financial.050808.114245 |
| [15] | Barakat, M. H. & Rao R. P. (2013) The role of taxes in capital structure: Evidence from taxed and non-taxed Arab economies, Working Paper, Oklahoma State University. https://mpra.ub.uni-muenchen.de/25472/ |
| [16] | Barclay, M. J., & Smith, C. W. (2020) The capital structure puzzle: Another look at the evidence, Journal of Applied Corporate Finance, 32 (1): 80-91 https://onlinelibrary.wiley.com/doi/abs/10.1111/jacf.12390 |
| [17] | Barrot, J-N. (2016) Trade credit and industry dynamics: Evidence from trucking firms, Journal of Finance, 71 (5): 1975-2016. https://onlinelibrary.wiley.com/doi/abs/10.1111/jofi.12371 |
| [18] | Black, F., & Scholes, M. (1973) The pricing of options and corporate liabilities, Journal of Political Economy, 81 (3): 637-659. https://www.jstor.org/stable/1831029 |
| [19] | Bolton, P. (2016) Debt and money: Financial constraints and sovereign finance, Journal of Finance 71 (4): 1483-1510. https://onlinelibrary.wiley.com/doi/abs/10.1111/jofi.12418 |
| [20] | Bolton, P. & Huang, H. (2018) The capital structure of nations, Review of Finance, 22 (1): 45-82. https://doi.org/10.1093/rof/rfx042 |
| [21] | Brealey, R., Myers, S., & Allen, F. (2020) Principles of Corporate Finance, 13th Edition, McGrawHill Inc. |
| [22] | Cerqueiro, G., Ongena, S. & Roszbach, K. (2016) Collateralization, bank loan rates, and monitoring, Journal of Finance, 71 (3): 1295-1322. https://doi.org/10.1111/jofi.12214 |
| [23] | Chandrasekharan, C. V. (2012) Determinants of capital structure in the Nigerian listed firms, International Journal of Advanced Research in Management and Social Sciences, 1 (2): 108-133. https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=&cad=rja&uact=8&ved=2ahUKEwjM2cSu3cTrAhXWXRUIHbK- |
| [24] | Chang, X. and S. Dasgupta (2009) Target behaviour and financing: How conclusive is the evidence? Journal of Finance, 64: 1767 -1796. https://doi.org/10.1111/j.1540-6261.2009.01479.x |
| [25] | Chen, Y., Chen, C. R., & Chu, C-K. (2014) The effect of executive stock options on corporate innovative activities, Financial Management, 43 (2): 271-290. DOI: 10.2307/43280182 |
| [26] | Choi, J., & Richardson, M. (2016) The volatility of a firm’s assets and the leverage effect, Journal of Financial Economics, 121 (2): 254-277. https://doi.org/10.1016/j.jfineco.2016.05.009 |
| [27] | Cohn, J. B., Titman, S. & Twite, G. J. (2020) Capital structure and investor-level taxes: Evidence from a natural experiment in Europe, SSRN. https://dx.doi.org/10.2139/ssrn.2941957 |
| [28] | Copeland, T. E., Weston, J. F., & Shastri, K. (2005) Financial Theory and Corporate Policy, 4th Edition, Boston, MA: Pearson Addison-Wesley. https://afajof.org/wp-content/uploads/files/historical-texts/Financial_Theory_and_Corpora.pdf |
| [29] | Cronqvist, H., Makhija, A. K.&Yonker, S. E. (2012) Behavioural consistency in corporate finance: CEO personal and corporate leverage, Journal of Financial Economics 103: 20-40. https://doi.org/10.1016/j.jfineco.2011.08.005 |
| [30] | DeAngelo, H., & Masulis, R. (1980) Optimal capital structure under corporate and personal taxation, Journal of Financial Economics, 8 (1): 5-29. https://doi.org/10.1016/0304-405X(80)90019-7 |
| [31] | DeAngelo, H. & Roll, R. (2015) How stable are corporate capital structures? Journal of Finance, 70 (1): 373-418. https://doi.org/10.1111/jofi.12163 |
| [32] | De Jong, A., Nguyen, T. T., & Kabir, R. (2008) Capital structure around the World: The roles of firm- and country-specific determinants, Journal of Banking & Finance, 32 (9): 1954-1969. https://doi.org/10.1016/j.jbankfin.2007.12.034 |
| [33] | Demirguc-Kunt, A., Peria, MSM, Tressel, T. (2020) The global financial crisis and the capital structure of firms: Was the impact more severe among SMEs and non-listed firms? Journal of Corporate Finance, 60 (1): 1-32. https://doi.org/10.1016/j.jcorpfin.2019.101514 |
| [34] | Ezeoha, A. E., & Okafor, F. O. (2010) Local corporate ownership and capital structure decisions in Nigeria: A developing country perspective, Corporate Governance, 10 (3): 249-260. https://doi.org/10.1108/14720701011051893 |
| [35] | Fama, E., &French, K. (2002) Testing tradeoff and pecking order predictions about dividends and debt, Review of Financial Studies, 15: 1-33. DOI: 10.2307/2696797. |
| [36] | Fama, E. F. &French, K. R. (2005) Financing decisions: Who issues stock? Journal of Financial Economics, 76: 549 – 582. https://doi.org/10.1016/j.jfineco.2004.10.003 |
| [37] | Fama, E.F. &French, K. R. (2012) Capital structure choices, Critical Finance Review, 1: 59-101. https://econpapers.repec.org/article/nowjnlcfr/104.00000002.htm |
| [38] | Fama, E. F. &Miller, M. H. (1972) The Theory of Finance, Holt Reinhart and Winston. |
| [39] | Fan, J., Titman, S. & Twite, G. (2012) An international comparison of capital structure and debt maturity choices, Journal of Financial and Quantitative Analysis, 47 (1): 23-56. https://doi.org/10.1017/S0022109011000597 |
| [40] | Ferres, D., Ormazabal, G., Povel, P. & Sertsios, G. (2020) Capital structure under collusion, Journal of Financial Intermediation, Available online 08 February 2020. https://doi.org/10.1016/j.jfi.2020.100854 |
| [41] | Frank, M. Z., &Goyal, V. K. (2003) Testing the pecking order theory of capital structure, Journal of Financial Economics, 67: 217-248. https://doi.org/10.1016/S0304-405X(02)00252-0 |
| [42] | Frank, M. Z., & Goyal, V. K. (2009) Financial Management, 38 (1): 1- 37. Capital structure decisions: Which factors are reliably important? https://doi.org/10.1111/j.1755-053X.2009.01026.x |
| [43] | Frank, M. Z., & Shen, T. (2014) Common factors in corporate capital structures, Working Paper, University of Minnesota. DOI: 10.2139/ssrn.2288767. |
| [44] | Glover, B. (2016) The expected cost of default, Journal of Financial Economics, 119: 284-299. https://doi.org/10.1016/j.jfineco.2015.09.007 |
| [45] | Graham, J. R. (2000) How big are the tax benefits of debts? Journal of Finance, 55 (5): 1901-1941. https://doi.org/10.1111/0022-1082.00277 |
| [46] | Graham, J. R. &Tucker, A. L. (2006) Tax shelters and corporate debt policy, Journal of Financial Economics, 81: 563-594. https://doi.org/10.1016/j.jfineco.2005.09.002 |
| [47] | Graham, J. R., Leary, M. T. &Roberts, M. (2014a) A century of capital structure: The leveraging of corporate America, NBER Working Paper 19910, February 2014 http://www.nber.org/papers/w19910. |
| [48] | Graham, J. R., Leary, M. T.,& Roberts, M. (2014b) How does government borrowing affect corporate financing and investment? NBER Working Paper, April 16, 2014. DOI: 10.3386/w20581. |
| [49] | Grossman, S. J., & Hart, O. (1982) Corporate financial structure and managerial incentives, In John McCall ed., The Economics of Information and Uncertainty (University of Chicago Press), 1: 107-140. https://ssrn.com/abstract=578641 |
| [50] | Gwatidzo, T. (2008) Capital Structure of African Firms: Case Study of Kenya, Ghana, Nigeria and South Africa, Ph.D. Thesis University of South Africa, 09th October 2008. |
| [51] | Harris, M. &Raviv, A. (1991) The theory of capital structure, Journal of Finance, 46 (1): 297-355. https://doi.org/10.1111/j.1540-6261.1991.tb03753.x |
| [52] | Hart, O. & Moore, J. (1995) Debt and seniority: An analysis of the role of hard claims in constraining management, American Economic Review, 85 (3): 567-585. DOI: 10.2307/2118188. |
| [53] | Huang, R., &Ritter, J. (2009) Testing theories of capital structure and estimating the speed of adjustment, Journal of Financial and Quantitative Analysis, 44: 237-271. DOI: 10.2307/40505924. |
| [54] | Iyiegbuniwe, W. C. (2007) The Essence of Finance: Maximizing Life-Time Happiness, Inaugural Lecture Delivered at the University of Lagos Main Auditorium (31st January 2007). |
| [55] | Jensen, M. C. (1986) Agency costs of free cash flow, corporate finance and takeovers, American Economic Review, 76 (2): 323-329. DOI: 10.2307/1818789. |
| [56] | Jensen, M. C. & Meckling, W. (1976) Theory of the firm: Managerial behaviour, agency costs and ownership structure, Journal of Financial Economics, 3 (4): 305-360. https://doi.org/10.1016/0304-405X(76)90026-X |
| [57] | Kim, H. (2020) How does labour market size affect firm capital structure? Evidence from large plant openings, Journal of Financial Economics, Available online 4 May 2020, https://doi.org/10.1016/j.fineco.2020.04.012 |
| [58] | Leary, M. T. &Roberts, M. R. (2005) Do firms rebalance their capital structures? Journal of Finance, 60: 2575 – 2619. https://doi.org/10.1111/j.1540-6261.2005.00811.x |
| [59] | Leary, M. T. &Roberts, M. R. (2014) Do peer firms affect corporate financial policy? Journal of Finance, 69 (1): 139 -178. https://doi.org/10.1111/jofi.12094 |
| [60] | Lemmon, M., Roberts, M. &Zender, J. (2008) Back to the beginning: persistence and the cross section of corporate capital structure, Journal of Finance, 63: 1575-1608. https://doi.org/10.1111/j.1540-6261.2008.01369.x |
| [61] | Lewellen, K. (2006) Financing decisions when managers are risk averse, Journal of Financial Economics, 82: 551-589. https://doi.org/10.1016/j.jfineco.2005.06.009 |
| [62] | Lilienfeld-Toal, U. V. & S. Ruenzi (2014) CEO ownership, stock market performance and managerial discretion, Journal of Finance, 69 (3): 1013-1050. DOI: 10.2307/43611178. |
| [63] | Machokoto, M., Areneke, G. & Ibrahim, B. M. (2020) Rising corporate debt and value relevance of supply-side factors in South Africa, Journal of Business Research, 109 (1): 26-37 https://doi.org/10.1016/j.jbusres.2019.11.039 |
| [64] | Maes, E., Dewaelheyns, N., Fuss, C., & van Hulle, C. (2019) The impact of exporting on financial debt choices of SMEs, Journal of Business Research, 102: 56-73 https://doi.org/10.1016/j.jbusres.2019.05.008 |
| [65] | Merton, R. C. (1973) Rational theory of option pricing, Bell Journal of Economics and Management Science, 4 (1): 141-183. DOI: 10.2307/3003143. |
| [66] | Miller, M. H. (1977) Debt and taxes, Journal of Finance, 32: 261-276. https://doi.org/10.1111/j.1540-6261.1977.tb03267.x |
| [67] | Miller, M. H. (1995) Do the M&M propositions apply to banks? Journal of Banking and Finance, 19: 483-489. https://doi.org/10.1016/0378-4266(94)00134-O |
| [68] | Modigliani, F. & Miller, M. H. (1958) The cost of capital, corporation finance and the theory of investment, American Economic Review, 48: 261-296. DOI: 10.2307/1809766. |
| [69] | Modigliani, F. &Miller, M. H. (1963) Corporate income taxes and the cost of capital: A correction, American Economic Review, 53: 433-443. https://www.jstor.org/stable/1809167?seq=1 |
| [70] | Myers, S. C. (1977) The determinants of corporate borrowing, Journal of Financial Economics, 5: 147-175. https://www.sciencedirect.com/science/article/abs/pii/0304405X77900150 |
| [71] | Myers, S. C. (1984) The capital structure puzzle, Journal of Finance, 39: 575 – 592. https://onlinelibrary.wiley.com/doi/full/10.1111/j.1540-6261.1984.tb03646.x |
| [72] | Myers, S. C (2001) Capital Structure, Journal of Economic Perspectives, 15 (2): 81-102. https://www.aeaweb.org/articles?id=10.1257/jep.15.2.81 |
| [73] | Myers, S. C. & Majluf, N. S. (1984) Corporate financing and investment decisions when firms have information the investors do not have, Journal of Financial Economics, 13: 187 – 221. https://www.sciencedirect.com/science/article/abs/pii/0304405X84900230 |
| [74] | Olokoyo, F. O. (2012) Capital Structure and Corporate Performance of Nigerian Quoted Firms, Ph.D. Thesis, Department of Banking & Finance, Covenant University. |
| [75] | Olowe, R. (2009) Stock Return Volatility and the Global Financial Crisis in an Emerging Market: The Nigerian Case, International Review of Business Research Papers, 5 (4): 426- 447. https://www.researchgate.net/publication/228676340 |
| [76] | Olowe, R. A. (2011) Real Stock Returns, Volatility and Real Economic Activity: Evidence from Nigeria, Journal of Management Review, 1 (1): 11-42. |
| [77] | Owualah, S. I. (2014) Finance and Entrepreneurship: Rod and Staff through the Valley of Unemployment, (Inaugural Lecture October 22, 2014), University of Lagos Ltd. https://ir.unilag.edu.ng/handle/123456789/769 |
| [78] | Oyejide, T. A. (1987) The impact of equity capital, retained earnings and debt on corporate profits in Nigeria, The Nigerian Journal of Economic and Social Studies, 29 (1): 35-45. https://www.africabib.org/rec.php?RID=119535947 |
| [79] | Parsons, C., &Titman S. (2008) Empirical capital structure: A review, Foundations and Trends in Finance 3: 1- 93. DOI: 10.1561/0500000018. |
| [80] | Paseda, O. A. (2016) The determinants of capital structure of Nigerian quoted firms, Ph.D. Thesis, Department of Finance, University of Lagos, Nigeria. https://dx.doi.org/10.2139/ssrn.2890900 |
| [81] | Paseda, O. A. (2020a) The impact of taxes on the borrowing behaviour of Nigerian quoted firms, Pakistan Journal of Social Sciences, 17 (1): 59-76. |
| [82] | Paseda, O. A. (2020b) Information in the tax benefit curves of selected Nigerian quoted firms, IOSR Journal of Economics and Finance, 11 (4S2): 54-71. |
| [83] | Paseda, O. A. & Adedeji, B. S. (2020) The mystery of zero-leverage firms: Evidence from Nigerian quoted firms, GATR Accounting and Finance Review, 5 (2): 28-55. |
| [84] | Paseda, O. A. & Obademi, O. (2020) Macroeconomic variables and their effects on the capital structure of quoted Nigerian firms, Finance and Banking Review, 14 (1): 31-51. |
| [85] | Rajan, R. & Zingales, L. (1995) What do we know about capital structure? Some evidence from international data, Journal of Finance, 50: 1421-1460. DOI: 10.2307/2329322. |
| [86] | Soyibo, A. (1996) Determinants of choice of investment finance by Nigerian firms, African Journal of Economic Policy, 3 (1): 35-45. |
| [87] | Soyode, A. (1975) Dividend policy in an era of indigenization: Comment, The Nigerian Journal of Economic and Social Studies, 17 (2): 149-154. |
| [88] | Soyode, A. (1978) Financing industrial growth in Nigeria: A study of the place of debt and retained earnings, Journal of Management, Ghana, 10 (1): 26-31. |
| [89] | Strebulaev, I. (2007) Do tests of capital structure theory mean what they say? Journal of Finance, 62 (4): 1747–1787. https://onlinelibrary.wiley.com/doi/10.1111/j.1540-6261.2007.01256.x |
| [90] | Strebulaev, I. &Yang, B. (2013) The mystery of zero-leverage firms, Journal of Financial Economics, 109: 1-23. https://doi.org/10.1016/j.jfineco.2013.02.001 |
| [91] | Titman, S. & Wessels, R. (1988) The determinants of capital structure, Journal of Finance, 43: 1-19. https://doi.org/10.1111/j.1540-6261.1988.tb02585.x |
| [92] | Welch, I. (2011) Two common problems in capital structure research, International Review of Finance, 11 (1): 1-17. DOI: j.1468-2443.2010.01125.x. |
| [93] | Welch, I. (2015) Corporate finance: An introduction, 2nd Edition, Pearson Education. |
| [94] | Zingales, L. (2015) Does finance benefit society, Journal of Finance, 70 (4): 1327 – 1363. https://doi.org/10.1111/jofi.12295 |
APA Style
Oluseun Paseda. (2021). Firm Size, Asset Tangibility, Growth, Volatility, Dividends and the Capital Structure of Nigerian Quoted Firms. Journal of Finance and Accounting, 9(2), 36-52. https://doi.org/10.11648/j.jfa.20210902.13
ACS Style
Oluseun Paseda. Firm Size, Asset Tangibility, Growth, Volatility, Dividends and the Capital Structure of Nigerian Quoted Firms. J. Finance Account. 2021, 9(2), 36-52. doi: 10.11648/j.jfa.20210902.13
AMA Style
Oluseun Paseda. Firm Size, Asset Tangibility, Growth, Volatility, Dividends and the Capital Structure of Nigerian Quoted Firms. J Finance Account. 2021;9(2):36-52. doi: 10.11648/j.jfa.20210902.13
Share This Article
Twitter
Linked In
Facebook
Copy
Download@article{10.11648/j.jfa.20210902.13,
author = {Oluseun Paseda},
title = {Firm Size, Asset Tangibility, Growth, Volatility, Dividends and the Capital Structure of Nigerian Quoted Firms},
journal = {Journal of Finance and Accounting},
volume = {9},
number = {2},
pages = {36-52},
doi = {10.11648/j.jfa.20210902.13},
url = {https://doi.org/10.11648/j.jfa.20210902.13},
eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.jfa.20210902.13},
abstract = {Empirical work on capital structure in emerging markets like Nigeria has been sparse and met with low explanatory power. This study investigates the determinants of capital structure in Nigeria. The population of study comprises all non-financial corporations quoted on the Nigerian Stock Exchange (NSE) for the period 1999-2014 out of which 50 companies that met the minimum data criteria were utilized. Using panel data least squares regression, modified to weighted (cross section- and period-) models, the research documents the following findings. First, the factors that exert positive influence on corporate borrowing include firm age, intangible assets and expected inflation while those factors that exert negative influence on capital structure include tangible assets, growth, size, volatility of earnings, profitability, liquidity, dividend-paying status and uniqueness of industry. The results were, at best, mixed with respect to the portability of pecking order, target adjustment, trade-off, agency and market conditions models. The pecking order beats the trade-off model based on the signs of coefficients of firm-level attributes. In order words, asymmetric information explains why smaller, less profitable, less liquid firms with more risky intangible assets and which are low dividend-payers end up relying primarily on debt financing and vice versa. The study recommends the use of leases for financially- and collateral-constrained firms as well as instruments that facilitate information symmetry in financial markets.},
year = {2021}
}
TY - JOUR T1 - Firm Size, Asset Tangibility, Growth, Volatility, Dividends and the Capital Structure of Nigerian Quoted Firms AU - Oluseun Paseda Y1 - 2021/04/29 PY - 2021 N1 - https://doi.org/10.11648/j.jfa.20210902.13 DO - 10.11648/j.jfa.20210902.13 T2 - Journal of Finance and Accounting JF - Journal of Finance and Accounting JO - Journal of Finance and Accounting SP - 36 EP - 52 PB - Science Publishing Group SN - 2330-7323 UR - https://doi.org/10.11648/j.jfa.20210902.13 AB - Empirical work on capital structure in emerging markets like Nigeria has been sparse and met with low explanatory power. This study investigates the determinants of capital structure in Nigeria. The population of study comprises all non-financial corporations quoted on the Nigerian Stock Exchange (NSE) for the period 1999-2014 out of which 50 companies that met the minimum data criteria were utilized. Using panel data least squares regression, modified to weighted (cross section- and period-) models, the research documents the following findings. First, the factors that exert positive influence on corporate borrowing include firm age, intangible assets and expected inflation while those factors that exert negative influence on capital structure include tangible assets, growth, size, volatility of earnings, profitability, liquidity, dividend-paying status and uniqueness of industry. The results were, at best, mixed with respect to the portability of pecking order, target adjustment, trade-off, agency and market conditions models. The pecking order beats the trade-off model based on the signs of coefficients of firm-level attributes. In order words, asymmetric information explains why smaller, less profitable, less liquid firms with more risky intangible assets and which are low dividend-payers end up relying primarily on debt financing and vice versa. The study recommends the use of leases for financially- and collateral-constrained firms as well as instruments that facilitate information symmetry in financial markets. VL - 9 IS - 2 ER -
Information
Email: