This paper investigated the effect of capital structure on corporate financial distress of manufacturing firms in Nigeria by employing panel corrected standard error (PCSE) technique. The variables used in the study are corporate financial distress, capital structure, firm size, assets tangibility, revenue growth, profitability and age of firms. The outcome of the research reveals that capital structure affects corporate financial distress negatively while company age from listing years, profitability and asset tangibility affects corporate financial distress positively. The result further revealed that firm growth and firm size affects financial distress negatively. Policy implication from the study is that managers have to be cautious when designing their capital structure. Also, government should encourage firms to use internally generated fund than external fund by granting preferential tax treatment on their retained earnings. This will encourage investment in growth-oriented strategies. In addition, the Central Bank of Nigeria should direct banks to lower the cost of borrowing for manufacturing firms to ensure financial stability.

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This paper in an attempt in answering the basic research question on what actually determines financial distress of firms in the manufacturing sector in the country employed the fully modified ordinary least square (FMOLS) on annual time series data of eighteen listed manufacturing firms on the Nigeria stock exchange (NSE) which was obtained from their audited financial statement. The endogenous variable used in the study is financial distress which is measured using the Altman Z score while the exogenous variables employed in the study are firm size, liquidity, profitability, and leverage. The study also employed a list of control variables such as revenue growth and share price. Findings from the study showed that leverage, liquidity, profitability, firm size, revenue growth, and share price are the firmspecific determinant of financial distress of firms in the manufacturing sector in the country. The findings of this study pose significant policy directions. First, managers and owners of the corporate organization need to pay critical attention to these variables when making financial decisions. Second, to ensure smooth operation and continued survival of firms, corporate managers need to design policies that will determine the appropriate level of liquidity, leverage, profitability and revenue growth. Also, management needs to set up control measures that will detect early warning signal of financial distress.