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.
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
Keywords
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…
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..