Macroeconomic and institutional determinants of firms'choices of capital structure in Nigeria: a system-GMM approach

Abstract

The study investigates whether external environment in which firms operate plays any role in the choice of corporate capital structure decision in Nigeria. A panel data of 66 listed companies, comprising firms' leverage, macroeconomic variables and institutional quality, are used. Data are collected from World Development Indicator, OPEC annual oil price statistics, annual reports and accounts of selected listed companies, fact books published by Nigerian stock exchange and International Country Risk Guide between 1999 and 2015. The study employs pooled OLS, random effect and system-GMM for the analysis. Results show that external environment plays important role in the choice of firm's capital structure as macroeconomic variables and institutional quality variable have significant results. Macroeconomic variables such as inflation, oil price, GDP and lagged value of the dependent variable, have positive and significant results on leverage. Other variables, such as exchange rate, corruption and investment have negative effects on leverage.

Country Level Governance as A Capital Structure Determinant: A Case of Pakistani Non-Financial Listed Firms

“…An increase in the corruption index (lower corruption) suggests that businesses use equity instead of short-term indebtedness, according to a negative significant association between COR and S.T.D.. These findings validate the findings of other studies Apanisile and Olayiwola (2019); Jõeveer (2013) and lend credence to the pecking-order idea. In contrast, Fan, Titman, and Twite (2012) findings are consistent with the association between corruption and DER, LTD, and TD, which is significantly favorable.…”