Determinants of Financial Structure: Evidence from Nigerian Quoted Firms

Abstract

In a developing economy such as Nigeria’s, financial markets lack the capacity to meet the financial requirements of business firms. Firms utilize loans, leases and other interest-bearing financial obligations as sources of debt financing. Consequent upon the foregoing, we analyze the determinants of financial structure of Nigerian quoted firms during the period spanning 1999-2012. The study adopted two theoretical frameworks: Pecking order and Static Trade-off Theories captured  in a panel regression model. A sample of 25 firms was selected based on data quality and availability to address the requirements of the variables in the regression model. The results of the regression indicate that profitability, tangibility, volatility (operating risk), growth opportunities and firm size are important factors influencing the choice of financial mix among Nigerian firms. Our findings are corroborative of theoretical predictions and empirical evidence. Therefore, we provide useful recommendations for leverage decisions for managers of Nigerian firms and the management of the Nigerian stock market.

Keywords: determinants, financial structure, capital structure, Nigerian firms, pecking order and static trade - off theories.