Determinant of Financial Structure Decision in Small and Medium Enterprises: A Pilot Study of Selected Registered Companies in Nigeria

Abstract

In the world of corporate finance, financial structure decision of firms remains one of the most critical. Previous empirical studies have identified factors like size, asset structure, tangibility, profitability, risk, growth and market-to-book ratio all of which have been exhausted in literature as determinants of financial structure of firms. However, research on verifying the existence of these factors in small size firms has been minimal. This study presents a sample of SMEs in Nigeria which serves as a pilot survey for the test of the existence and strength of the identified determinant factors of financial structure. A panel data of ten firms for five years was analyzed using the pooled OLS. The result reveals profitability and size as the only determinant factor for firms under study. This shows a deviation from other studies on small firms in developing economies, the reason which may be country specific. The study provides a starting point for a more inclusive and comprehensive study on financial structure decisions of SMEs in Nigeria.