Local corporate ownership and capital structure decisions in Nigeria: a developing country perspective

Abstract

PurposeThe primary aim of this paper is to investigate the nature, degree and direction of the effects of certain classes of corporate ownership on capital structure decisions among firms.Design/methodology/approachUsing a sample of 71 quoted companies in Nigeria, the study adopts panel fixed effects regression models to estimate the relationship between financial leverage and corporate ownership, while controlling for some firm‐specific characteristics like profitability, firm size and firm age.FindingsThe study finds that discrimination between indigenous and foreign firms is a major determinant of financial leverage in Nigeria; and that the consistency of empirical results and capital structure theories across countries depends much on the dominant nature of corporate ownership structure.Research limitations/implicationsAn attempt to widely generalize the results of this study may be challenged by its relatively small sample. With data from just a sample of 71 firms, the robustness of the country‐, time‐ and company‐ effects may not have been fully captured in the estimation process.Practical implicationsThe paper provides necessary platforms, especially to corporate managers, for aligning financing decisions and ownership structure to other structural characteristics such as size, age, and profitability.Originality/valueThe study is unique because it examines ownership effects on leverage using selected ownership classes; and because it focuses on an economy with harsh corporate operating environment and constrained capital market condition..