Determinant of the financial structure of manufacturing firms in a developing economy: A study of selected listed manufacturing firms in Nigeria

Abstract

This study principally interrogates what drives the financial structure of listed firms in an emerging economy, using Nigeria as a paradigm. The study specifically sought to examine the effects of selected major financial variables namely - assets tangibility, profitability and the size of the firms on their financial structure decision. The valid data used in study covered eight selected manufacturing listed firms in the Nigerian Stock Exchange. The study however adopted trade-off theory in the theoretical framework. In the methodology, we employed pooled ordinary least square (POLS) approach. The outcome of the study revealed that size of a firm is a major determinant of financial structure in Nigeria emerging economy for the period under study. From our analysis, p-values of other factors examined such as profitability and asset tangibility showed no significant effect. The study therefore, concluded that high costs of floating shares and bureaucracies in the listing procedures formed some of the challenges faced by these companies while making or adjusting the pattern of their financial structures. The paper recommended that the Nigeria Stock Market should be made operators and investment friendly by reducing the floating costs and effects changes to the stringent listing conditions.