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Article
Publication date: 15 August 2008

Abel Ebel Ezeoha

The purpose of this paper is to investigate, from an undeveloped market perspective, the nature and significance of firm size as a determinant of corporate financial leverage.

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Abstract

Purpose

The purpose of this paper is to investigate, from an undeveloped market perspective, the nature and significance of firm size as a determinant of corporate financial leverage.

Design/methodology/approach

A panel data fixed‐effects regression model is used to estimate the relationship between financial leverage and firm size, while controlling also for the effects of other acclaimed determinants like asset tangibility, profitability and firm age. The dataset used covers 71 firms quoted in the Nigerian stock markets over a 17‐year period (1990‐2006).

Findings

The study reveals that as much as 91.4 percent of the total finances of Nigerian‐quoted firms is of short‐term liabilities, with just 8.6 percent constituting long‐term liabilities. It finds that firm size is negatively and significantly related to financial leverage. Controlling for some other determinants, the arising results tend to confirm an over‐bearing influence of the pecking order theory in the financing patterns of Nigerian‐quoted firms – by revealing that the relationship between profitability and financial leverage is highly significant and negative; and that firm‐age is positively and significantly related to financial leverage.

Originality/value

Using data from a country with undeveloped and inefficient financial markets, this paper provides an important insight on the international debate on the effects of size on corporate decisions.

Details

The Journal of Risk Finance, vol. 9 no. 4
Type: Research Article
ISSN: 1526-5943

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Article
Publication date: 15 June 2010

Abel Ebel Ezeoha and Francis O. Okafor

The primary aim of this paper is to investigate the nature, degree and direction of the effects of certain classes of corporate ownership on capital structure decisions among

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Abstract

Purpose

The primary aim of this paper is to investigate the nature, degree and direction of the effects of certain classes of corporate ownership on capital structure decisions among firms.

Design/methodology/approach

Using a sample of 71 quoted companies in Nigeria, the study adopts panel fixed effects regression models to estimate the relationship between financial leverage and corporate ownership, while controlling for some firm‐specific characteristics like profitability, firm size and firm age.

Findings

The study finds that discrimination between indigenous and foreign firms is a major determinant of financial leverage in Nigeria; and that the consistency of empirical results and capital structure theories across countries depends much on the dominant nature of corporate ownership structure.

Research limitations/implications

An attempt to widely generalize the results of this study may be challenged by its relatively small sample. With data from just a sample of 71 firms, the robustness of the country‐, time‐ and company‐ effects may not have been fully captured in the estimation process.

Practical implications

The paper provides necessary platforms, especially to corporate managers, for aligning financing decisions and ownership structure to other structural characteristics such as size, age, and profitability.

Originality/value

The study is unique because it examines ownership effects on leverage using selected ownership classes; and because it focuses on an economy with harsh corporate operating environment and constrained capital market condition..

Details

Corporate Governance: The international journal of business in society, vol. 10 no. 3
Type: Research Article
ISSN: 1472-0701

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