Firm Capital Structure and Financial Sector Performance in Nigeria

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.