Determinants of capital structure: A study of Nigerian quoted companies

Abstract

This paper examines the determinants of corporate capital structure of thirty-five firms listed on the Nigerian Stock Exchange between 2006 and 2012. Panel data methodology was employed and pooled Ordinary Least Squares was (OLS) used to estimate the coefficients of six firm-specific determinants. Results reveal that the three leverage ratios (Total Leverage Ratio, Long-Term Leverage Ratio and Short-Term Leverage Ratio) are negatively and significantly related with profitability. Firm size and asset tangibility are however, positively and significantly related with leverage proxies. The outcome of the study shows that Nigerian firms rely heavily on the use of retained earnings (internal source) and where funds raised are insufficient, they then seek for external source. This is in line with financial theory and provides evidence in support of Pecking Order Theory.

Key Words: Capital structure, Leverage, Pecking order, Static trade off, Nigeria