Capital structure choice, industry classification and firm value: Evidence from emerging market

Abstract

Many researches have examined the impact of capital structure on firm value in both advanced and emerging nations. Yet, none of these research streams have produce conclusive findings. We argue that these studies have failed to take into account other contingency factors that have the tendency to influence this relationship. This study examines the moderating effect of industry classification on the relationship between capital structure and firm value using a sample of 300 listed firms in Nigeria. The study employed panel data analysis to select the appropriate regression model. Using EV/EBITDA ratio as a proxy to firm value, the results show that capital structure components (long-term debt to total assets ratio, total debt to total assets ratio and total debt to total equity ratio) have significant positive effect on firm value, while short-term debt to total assets ratio has insignificant effect on firm value. Moreover, the findings indicate that contingency factor (industry classification) significantly moderates the relationship between capital structure and firm value. Based on these findings, this study concludes that firm can improve their value by aligning and integrating other contingency factors towards their capital structure decisions.