Abstract
This paper investigated the effect of capital structure on corporate financial distress of manufacturing firms in Nigeria by employing panel corrected standard error (PCSE) technique. The variables used in the study are corporate financial distress, capital structure, firm size, assets tangibility, revenue growth, profitability and age of firms. The outcome of the research reveals that capital structure affects corporate financial distress negatively while company age from listing years, profitability and asset tangibility affects corporate financial distress positively. The result further revealed that firm growth and firm size affects financial distress negatively. Policy implication from the study is that managers have to be cautious when designing their capital structure. Also, government should encourage firms to use internally generated fund than external fund by granting preferential tax treatment on their retained earnings. This will encourage investment in growth-oriented strategies. In addition, the Central Bank of Nigeria should direct banks to lower the cost of borrowing for manufacturing firms to ensure financial stability. Key words: Corporate financial distress, capital structure, PCSE, Nigeria.
Highlights
Financial distress has become a topical issue in almost all the markets in the world
ALTMA is corporate financial distress, αi is constant, CAPS is capital structure which is represented as the ratio of long-term loan to total asset, and X is a vector of control variables such as Firm size (SZ), Assets Tangibility (ASTANG), Revenue growth (FGROWTH), Profitability (PROFIT), and Age of firms (AGE)
The result revealed that there is a negative correlation between capital structure and corporate financial distress, firm size, assets tangibility and financial distress, while a positive correlation exist between company age from listing years, firm growth, profitability and corporate financial distress
Summary
Capital structure and corporate financial distress of manufacturing firms in Nigeria. This paper investigated the effect of capital structure on corporate financial distress of manufacturing firms in Nigeria by employing panel corrected standard error (PCSE) technique. The variables used in the study are corporate financial distress, capital structure, firm size, assets tangibility, revenue growth, profitability and age of firms. The outcome of the research reveals that capital structure affects corporate financial distress negatively while company age from listing years, profitability and asset tangibility affects corporate financial distress positively. Government should encourage firms to use internally generated fund than external fund by granting preferential tax treatment on their retained earnings. This will encourage investment in growth-oriented strategies.
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