CAPITAL STRUCTURE DECISIONS: DOES FIRM CHARACTERISTICS MATTERS? AN EMPIRICAL ANALYSIS OF LISTED MANUFACTURING FIRMS IN NIGERIA

Abstract

Determination of optimal capital structure decision poses great challenges to listed manufacturing firms in Nigeria, as wrong financing decision may crumble the fortune of any firm. This study looks at how firm characteristics affect the capital structure decisions of Nigerian-listed manufacturing firms. It also tries to exploit the di erences among capital structure decisions by demarcating various degrees of capital structure decision into aggressive decision, moderate decision and conservative decision. A comparative test of trade-o theory and pecking order theory using over 280 observations from listed manufacturing ÿrms in Nigeria between 2012 and 2022. It focuses on the role of non-debt tax shield, proÿtability, business risk, and liquidity as variables that help explain these strategic capital structure decisions. The study used a quantitative approach and a correlational research design in analyzing panel data from twenty-eight ÿrms. The study uncovered a statistically signiÿcant link between proÿtability and business risk under the pooled and for ÿrms that adopted aggressive decision. Meanwhile, business risk and liquidity were signiÿcant for ÿrms that adopted conservative decision, and non-debt tax shield and liquidity were signiÿcant for ÿrms that adopted moderate decision. As a result, it was recommended that future and present investors, as well as other pertinent stakeholders, utilize the business risk associated with the ÿrm as a means of assessing the capital structure of Nigerian listed manufacturing ÿrms. Furthermore, it is imperative for the management of industrial goods firms in Nigeria to prioritize profitability and strive to maintain adequate liquidity ratios and a non-debt tax shield.