Firm Capital Structure and Financial Sector Performance in Nigeria

Michael Asiedu

doi:doi:10.11648/j.eco.20211004.12

| Peer-Reviewed

Firm Capital Structure and Financial Sector Performance in Nigeria

Michael Asiedu

Published in Economics (Volume 10, Issue 4)

Received: 9 October 2021 Accepted: 9 November 2021 Published: 25 November 2021

Views: Downloads:

Download PDF

Share This Article

Twitter
Linked In
Facebook

Abstract

This study employed the two-step systems GMM and fixed-effect model to examine the relative importance and explanatory power of six (6) variables in considering the capital structure of 36 non-financial companies listed on the Nigeria Stock Exchange from 2008-2019. The study also examined the effect of the rule of law, institutional quality, macroeconomic management, financial sector performance, and accountability and corruption on firm capital structure. The findings of the study affirm' the theoretical underpinnings of the pecking order theory in Nigeria. The study finds that profitability and Liquidity ratios are negatively associated with debt ratios among non-financial firms in Nigeria. Firm size and tangibility of firm assets positively affect the debt ratio of these firms. The study also concludes that the rule of law, macroeconomic management, financial sector performance, accountability, and corruption indeed matter in determining firm financing mix in Nigeria. Indeed, the rule of law, financial sector rating, accountability, and corruption forms the fundamental basis for the enforcement of contracts, registration, and protection rights. The study provides evidence to the effect that these variables are critical for both equity and debt financing. This study adds to the existing literature as all the determinants used in the study are statistically significant in determining the capital structure of non-financial firms in Nigeria.

Published in	Economics (Volume 10, Issue 4)
DOI	10.11648/j.eco.20211004.12
Page(s)	112-124
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), 2024. Published by Science Publishing Group

Keywords

Leverage Ratio, Profitability Ratio, Liquidity Ratio, Tangibility, Asset Turnover Ratio

References

[1]	S. C. Myers, “Determinants of corporate borrowing,” J. Financ. Econ., vol. 5, no. 2, pp. 147–175, 1977.
[2]	F. Modigliani and M. H. Miller, “The cost of capital, corporation finance and the theory of investment,” Am. Econ. Rev., vol. 48, no. 3, pp. 261–297, 1958.
[3]	F. Modigliani and M. H. Miller, “Corporate income taxes and the cost of capital: a correction,” Am. Econ. Rev., vol. 53, no. 3, pp. 433–443, 1963.
[4]	M. SC, “yers,—The capital structure puzzle “,” J. Finance, vol. 39, no. 3, pp. 575–592, 1984.
[5]	A. Kraus and R. H. Litzenberger, “A state-preference model of optimal financial leverage,” J. Finance, vol. 28, no. 4, pp. 911–922, 1973.
[6]	M. C. Jensen and W. H. Meckling, “Theory of the firm: Managerial behavior, agency costs and ownership structure,” J. Financ. Econ., vol. 3, no. 4, pp. 305–360, 1976.
[7]	M. Bradley, G. A. Jarrell, and E. H. Kim, “On the Existence of an Optimal Capital Structure: Theory and Evidence,” J. Finance, vol. 39, no. 3, pp. 857–878, 1984, doi: 10.2307/2327950.
[8]	R. Trezevant, “Debt financing and tax status: Tests of the substitution effect and the tax exhaustion hypothesis using firms’ responses to the Economic Recovery Tax Act of 1981,” J. Finance, vol. 47, no. 4, pp. 1557–1568, 1992.
[9]	S. C. Myers and N. S. Majluf, “Corporate financing and investment decisions when firms have information that investors do not have,” J. Financ. Econ., vol. 13, no. 2, pp. 187–221, 1984.
[10]	T. Nguyen and H. Nguyen, “Capital structure and firm performance of non-financial listed companies: Cross-sector empirical evidences from Vietnam,” Accounting, vol. 6, no. 2, pp. 137–150, 2020.
[11]	M. W. Waweru and D. Wanyoike, “EFFECT OF CAPITAL STRUCTURE ON PROFITABILITY OF MICROFINANCE INSTITUTIONS IN NAKURU TOWN, KENYA,” p. 24, 2016.
[12]	B. K. Kirui and S. O. Gor, “Financial Constraints and Firm Capital Structure in Kenya,” Int. J. Econ. Finance, vol. 10, no. 1, p. 177, Dec. 2017, doi: 10.5539/ijef.v10n1p177.
[13]	O. Nyang’oro, Determinants of Capital Structure of Listed Firms in Kenya and the Impact of Corporate Tax. African Economic Research consortium, 2016. Accessed: Jul. 14, 2021. [Online]. Available: http://publication.aercafricalibrary.org/handle/123456789/1160.
[14]	A. A. Malenya, “Influence of Firm Characteristics on Capital Structure of Private Manufacturing Firms in Kenya,” Thesis, JKUAT-COHRED, 2019. Accessed: Jul. 14, 2021. [Online]. Available: http://localhost/xmlui/handle/123456789/4898.
[15]	L. M. Mutua and G. K. Atheru, “Capital Structure and Financial Performance of Companies listed under Manufacturing and Allied Sector at Nairobi Securities Exchange in Kenya,” J. Finance Account., vol. 4, no. 1, Art. no. 1, Feb. 2020.
[16]	P. J. Tanui, J. C. Yegon, and R. Bonuke, “Effect of Ownership Structure on Corporate Diversification of Listed Firms in Kenya: The Moderating Role of Capital Structure,” SEISENSE J. Manag., vol. 2, no. 5, Art. no. 5, Aug. 2019, doi: 10.33215/sjom.v2i5.194.
[17]	H. N. Dang, V. T. T. Vu, X. T. Ngo, and H. T. V. Hoang, “Study the Impact of Growth, Firm Size, Capital Structure, and Profitability on Enterprise Value: Evidence of Enterprises in Vietnam,” J. Corp. Account. Finance, vol. 30, no. 1, pp. 144–160, 2019, doi: 10.1002/jcaf.22371.
[18]	J. O. Mudany, N. K. Letting, and W. Gituro, “Intervening Effects of Capital Structure on Strategy Implementation and Performance of Energy Sector Institutions in Kenya,” J. Finance Account., vol. 4, no. 3, Art. no. 3, Oct. 2020.
[19]	S. T. Bolarinwa and A. A. Adegboye, “Re-examining the determinants of capital structure in Nigeria,” J. Econ. Adm. Sci., vol. 37, no. 1, pp. 26–60, Jan. 2020, doi: 10.1108/JEAS-06-2019-0057.
[20]	Y. O. Ganiyu, I. Adelopo, Y. Rodionova, and O. L. Samuel, “Capital Structure and Firm Performance in Nigeria,” Afr. J. Econ. Rev., vol. 7, no. 1, Art. no. 1, Jan. 2019.
[21]	W. Khémiri and H. Noubbigh, “Determinants of capital structure: Evidence from sub-Saharan African firms,” Q. Rev. Econ. Finance, vol. 70, pp. 150–159, Nov. 2018, doi: 10.1016/j.qref.2018.04.010.
[22]	J. Abor, “Determinants of the Capital Structure of Ghanaian Firms,” Mar. 2008, Accessed: Jul. 22, 2021. [Online]. Available: http://publication.aercafricalibrary.org/handle/123456789/401.
[23]	M. Adusei and B. Sarpong-Danquah, “Institutional quality and the capital structure of microfinance institutions: the moderating role of board gender diversity,” J. Institutional Econ., vol. 17, no. 4, pp. 641–661, Aug. 2021, doi: 10.1017/S1744137421000023.
[24]	L. Serghiescu and V.-L. Văidean, “Determinant factors of the capital structure of a firm-an empirical analysis,” Procedia Econ. Finance, vol. 15, pp. 1447–1457, 2014.
[25]	R. G. Rajan and L. Zingales, “What do we know about capital structure? Some evidence from international data,” J. Finance, vol. 50, no. 5, pp. 1421–1460, 1995.
[26]	K. Mazur, “The determinants of capital structure choice: evidence from Polish companies,” Int. Adv. Econ. Res., vol. 13, no. 4, pp. 495–514, 2007.
[27]	S. Titman and R. Wessel, “The Determinants of Capital Structure Choice: The Journal of Finance, Vol XLIII (1), March,” 1988.
[28]	E. Nivorozhkin, “Financing choices of firms in EU accession countries,” Emerg. Mark. Rev., vol. 6, no. 2, pp. 138–169, 2005.
[29]	E. Nivorozhkin, “Capital structures in emerging stock markets: the case of Hungary,” Dev. Econ., vol. 40, no. 2, pp. 166–187, 2002.
[30]	A. Ozkan, “Determinants of capital structure and adjustment to long run target: evidence from UK company panel data,” J. Bus. Finance Account., vol. 28, no. 1-2, pp. 175–198, 2001.
[31]	W. H. Robert and R. Lloyd Hunter, “Determinants of capital structure in the retailing sector in the UK,” 1995.
[32]	T. J. O’Brien and P. A. Vanderheiden, “Empirical measurement of operating leverage for growing firms,” Financ. Manag., pp. 45–53, 1987.
[33]	D. Roodman, “How to do xtabond2: An introduction to difference and system GMM in Stata,” Stata J., vol. 9, no. 1, pp. 86–136, 2009.
[34]	D. Roodman, “A note on the theme of too many instruments,” Oxf. Bull. Econ. Stat., vol. 71, no. 1, pp. 135–158, 2009.
[35]	M. Arellano and O. Bover, “Another look at the instrumental variable estimation of error-components models,” J. Econom., vol. 68, no. 1, pp. 29–51, 1995.
[36]	I. Love and L. Zicchino, “Financial development and dynamic investment behavior: Evidence from panel VAR,” Q. Rev. Econ. Finance, vol. 46, no. 2, pp. 190–210, 2006.
[37]	B. H. Baltagi, “Forecasting with panel data,” J. Forecast., vol. 27, no. 2, pp. 153–173, 2008.
[38]	V. S. Tchamyou, “Education, lifelong learning, inequality and financial access: Evidence from African countries,” Contemp. Soc. Sci., vol. 15, no. 1, pp. 7–25, 2020.
[39]	S. A. Asongu, J. Nnanna, and P. N. Acha-Anyi, “Inequality and gender economic inclusion: the moderating role of financial access in Sub-Saharan Africa,” Econ. Anal. Policy, vol. 65, pp. 173–185, 2020.
[40]	T. Brambor, W. R. Clark, and M. Golder, “Understanding interaction models: Improving empirical analyses,” Polit. Anal., vol. 14, no. 1, pp. 63–82, 2006.
[41]	S. A. Asongu and J. C. Nwachukwu, “The role of governance in mobile phones for inclusive human development in Sub-Saharan Africa,” Technovation, vol. 55, pp. 1–13, 2016.
[42]	T. Beck, A. Demirgüç-Kunt, and R. Levine, “Law and finance: why does legal origin matter?,” J. Comp. Econ., vol. 31, no. 4, pp. 653–675, 2003.

Cite This Article

Plain Text BibTeX RIS

APA Style

Michael Asiedu. (2021). Firm Capital Structure and Financial Sector Performance in Nigeria. Economics, 10(4), 112-124. https://doi.org/10.11648/j.eco.20211004.12

Copy | Download

ACS Style

Michael Asiedu. Firm Capital Structure and Financial Sector Performance in Nigeria. Economics. 2021, 10(4), 112-124. doi: 10.11648/j.eco.20211004.12

Copy | Download

AMA Style

Michael Asiedu. Firm Capital Structure and Financial Sector Performance in Nigeria. Economics. 2021;10(4):112-124. doi: 10.11648/j.eco.20211004.12

Copy | Download

@article{10.11648/j.eco.20211004.12,
  author = {Michael Asiedu},
  title = {Firm Capital Structure and Financial Sector Performance in Nigeria},
  journal = {Economics},
  volume = {10},
  number = {4},
  pages = {112-124},
  doi = {10.11648/j.eco.20211004.12},
  url = {https://doi.org/10.11648/j.eco.20211004.12},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.eco.20211004.12},
  abstract = {This study employed the two-step systems GMM and fixed-effect model to examine the relative importance and explanatory power of six (6) variables in considering the capital structure of 36 non-financial companies listed on the Nigeria Stock Exchange from 2008-2019. The study also examined the effect of the rule of law, institutional quality, macroeconomic management, financial sector performance, and accountability and corruption on firm capital structure. The findings of the study affirm' the theoretical underpinnings of the pecking order theory in Nigeria. The study finds that profitability and Liquidity ratios are negatively associated with debt ratios among non-financial firms in Nigeria. Firm size and tangibility of firm assets positively affect the debt ratio of these firms. The study also concludes that the rule of law, macroeconomic management, financial sector performance, accountability, and corruption indeed matter in determining firm financing mix in Nigeria. Indeed, the rule of law, financial sector rating, accountability, and corruption forms the fundamental basis for the enforcement of contracts, registration, and protection rights. The study provides evidence to the effect that these variables are critical for both equity and debt financing. This study adds to the existing literature as all the determinants used in the study are statistically significant in determining the capital structure of non-financial firms in Nigeria.},
 year = {2021}
}

Copy | Download

TY  - JOUR
T1  - Firm Capital Structure and Financial Sector Performance in Nigeria
AU  - Michael Asiedu
Y1  - 2021/11/25
PY  - 2021
N1  - https://doi.org/10.11648/j.eco.20211004.12
DO  - 10.11648/j.eco.20211004.12
T2  - Economics
JF  - Economics
JO  - Economics
SP  - 112
EP  - 124
PB  - Science Publishing Group
SN  - 2376-6603
UR  - https://doi.org/10.11648/j.eco.20211004.12
AB  - This study employed the two-step systems GMM and fixed-effect model to examine the relative importance and explanatory power of six (6) variables in considering the capital structure of 36 non-financial companies listed on the Nigeria Stock Exchange from 2008-2019. The study also examined the effect of the rule of law, institutional quality, macroeconomic management, financial sector performance, and accountability and corruption on firm capital structure. The findings of the study affirm' the theoretical underpinnings of the pecking order theory in Nigeria. The study finds that profitability and Liquidity ratios are negatively associated with debt ratios among non-financial firms in Nigeria. Firm size and tangibility of firm assets positively affect the debt ratio of these firms. The study also concludes that the rule of law, macroeconomic management, financial sector performance, accountability, and corruption indeed matter in determining firm financing mix in Nigeria. Indeed, the rule of law, financial sector rating, accountability, and corruption forms the fundamental basis for the enforcement of contracts, registration, and protection rights. The study provides evidence to the effect that these variables are critical for both equity and debt financing. This study adds to the existing literature as all the determinants used in the study are statistically significant in determining the capital structure of non-financial firms in Nigeria.
VL  - 10
IS  - 4
ER  -

Copy | Download

Author Information

Michael Asiedu

School of Finance, Zhongnan University of Economics and Law, Wuhan, China

Download PDF

Sections

Plain Text BibTeX RIS

APA Style

Michael Asiedu. (2021). Firm Capital Structure and Financial Sector Performance in Nigeria. Economics, 10(4), 112-124. https://doi.org/10.11648/j.eco.20211004.12

Copy | Download

ACS Style

Michael Asiedu. Firm Capital Structure and Financial Sector Performance in Nigeria. Economics. 2021, 10(4), 112-124. doi: 10.11648/j.eco.20211004.12

Copy | Download

AMA Style

Michael Asiedu. Firm Capital Structure and Financial Sector Performance in Nigeria. Economics. 2021;10(4):112-124. doi: 10.11648/j.eco.20211004.12

Copy | Download

@article{10.11648/j.eco.20211004.12,
  author = {Michael Asiedu},
  title = {Firm Capital Structure and Financial Sector Performance in Nigeria},
  journal = {Economics},
  volume = {10},
  number = {4},
  pages = {112-124},
  doi = {10.11648/j.eco.20211004.12},
  url = {https://doi.org/10.11648/j.eco.20211004.12},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.eco.20211004.12},
  abstract = {This study employed the two-step systems GMM and fixed-effect model to examine the relative importance and explanatory power of six (6) variables in considering the capital structure of 36 non-financial companies listed on the Nigeria Stock Exchange from 2008-2019. The study also examined the effect of the rule of law, institutional quality, macroeconomic management, financial sector performance, and accountability and corruption on firm capital structure. The findings of the study affirm' the theoretical underpinnings of the pecking order theory in Nigeria. The study finds that profitability and Liquidity ratios are negatively associated with debt ratios among non-financial firms in Nigeria. Firm size and tangibility of firm assets positively affect the debt ratio of these firms. The study also concludes that the rule of law, macroeconomic management, financial sector performance, accountability, and corruption indeed matter in determining firm financing mix in Nigeria. Indeed, the rule of law, financial sector rating, accountability, and corruption forms the fundamental basis for the enforcement of contracts, registration, and protection rights. The study provides evidence to the effect that these variables are critical for both equity and debt financing. This study adds to the existing literature as all the determinants used in the study are statistically significant in determining the capital structure of non-financial firms in Nigeria.},
 year = {2021}
}

Copy | Download

TY  - JOUR
T1  - Firm Capital Structure and Financial Sector Performance in Nigeria
AU  - Michael Asiedu
Y1  - 2021/11/25
PY  - 2021
N1  - https://doi.org/10.11648/j.eco.20211004.12
DO  - 10.11648/j.eco.20211004.12
T2  - Economics
JF  - Economics
JO  - Economics
SP  - 112
EP  - 124
PB  - Science Publishing Group
SN  - 2376-6603
UR  - https://doi.org/10.11648/j.eco.20211004.12
AB  - This study employed the two-step systems GMM and fixed-effect model to examine the relative importance and explanatory power of six (6) variables in considering the capital structure of 36 non-financial companies listed on the Nigeria Stock Exchange from 2008-2019. The study also examined the effect of the rule of law, institutional quality, macroeconomic management, financial sector performance, and accountability and corruption on firm capital structure. The findings of the study affirm' the theoretical underpinnings of the pecking order theory in Nigeria. The study finds that profitability and Liquidity ratios are negatively associated with debt ratios among non-financial firms in Nigeria. Firm size and tangibility of firm assets positively affect the debt ratio of these firms. The study also concludes that the rule of law, macroeconomic management, financial sector performance, accountability, and corruption indeed matter in determining firm financing mix in Nigeria. Indeed, the rule of law, financial sector rating, accountability, and corruption forms the fundamental basis for the enforcement of contracts, registration, and protection rights. The study provides evidence to the effect that these variables are critical for both equity and debt financing. This study adds to the existing literature as all the determinants used in the study are statistically significant in determining the capital structure of non-financial firms in Nigeria.
VL  - 10
IS  - 4
ER  -

Copy | Download