Corporate nationality, foreign control and capital structure decisions in Nigeria

Abstract

The main objective of this study is to investigate whether corporate nationality and degree of foreign control influence capital structure decisions in a developing economy. The study makes use of eighteen-year time series data from 70 non-financial quoted firms in Nigeria. Using fixed effects panel regression models, it is found that though firm nationality and the degree of foreign control are significant determinants of corporate financing decisions in the country, they are not as important as acclaimed by local corporate stakeholders who champion discriminatory polcies in favour of indigenous firms. Thus, there is need for the Nigerian government to devote more attention in improving policy frameworks on areas such as corporate tax, corporate governance and bankruptcy practices, which are found by previous studies to be very important determinants of firm’s access to long-term investment capital.

Effects of foreign ownership and International Financial Reporting Standards on debt maturity in Chilean firms

“…Although Jones (2006) warns that there may be conflicts between foreign and national owners, Li et al (2009) argue that the described supervision effect has greater advantages, such as the attraction of new capital, technological improvements and corporate management. This view is also supported by Ezeoha et al (2008).…”

“…For this, foreign ownership should be over 50% and 60% in SMEs and large companies respectively (see tables 5 and 6). On this threshold value, foreign ownership constitutes a means of complementary long-term debt control (Ezeoha et al, 2008;Tanaka, 2015).…”

“…In our case, the percentage of existing foreign ownership could determine a specific effect on debt maturity. Ezeoha et al (2008) and Tanaka (2015) argue that foreign ownership has a positive effect on debt maturity, in a study indicating that the percentage of foreign ownership in Nigerian and Japanese firms is 27.80% and 22.30%, respectively. On the contrary, Choi and Choi (2013) point out that foreign participation in Korean firms reaches only 9.07%.…”

“…These variables have been used by several empirical works that attempted to quantify the effects of the separation of control and corporate ownership on debt maturity (Jensen & Meckling, 1976;Ozkan, 2000;Fleming, Heaney & McCosker, 2005;Guney & Ozkan, 2005;Datta et al, 2005;Benmelech, 2006;Harford et al, 2008). In these types of variables we also include the percentage of foreign ownership (FOS) to quantify the potential controlling role of these investors in business management through debt terms (Ezeoha et al, 2008;Choi & Choi, 2013;Tanaka, 2015).…”

“…This presence may have important effects on debt maturity, although limited international evidence has not been able to determine this relationship in a consistent manner. Some studies highlight that greater participation by foreign investors in corporate ownership leads to greater debt maturities (Ezeoha, Ogamba & Onyiuke, 2008;Li, Yue & Zhao, 2009;Tanaka, 2015). These studies argue that foreign ownership exercises a complementary supervisory role on long-term debt and that such monitoring can constitute great advantages and improvements to corporate management.…”