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The Determinants of the Capital Structure of Firms in Nigeria: The Financial Managers' Perspectives

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  • Rafiu Oyesola Salawu

Abstract

The paper examined the considerable factors in deciding on the appropriate amount of equity and debt in the Nigerian banking industry, and the factors influencing banks’ capital structure. Data were gathered through questionnaires administered to the financial managers of 25 listed banks in Nigeria. Cross tabulations and Chi-square were used for data analysis. The result suggests that credit-rating, volatility of earnings and cash flow, bankruptcy or near-bankruptcy, financial distress, transaction costs, fees for issuing debt, and financial flexibility are the important factors in choosing appropriate amount of debt. The most important factor that affects banks’ choice between short- and long-term debts is matching the maturity of debt with life of the asset. The study also reveals that ownership structure and management control, growth and opportunity, profitability, issuing cost, and tax economics associated with debt are the major factors influencing bank’s capital structure. It is, therefore, recommended that banks should adopt a mixed source of financing and choose appropriate ownership structure and management policy.

Suggested Citation

  • Rafiu Oyesola Salawu, 2007. "The Determinants of the Capital Structure of Firms in Nigeria: The Financial Managers' Perspectives," Global Journal of Business Research, The Institute for Business and Finance Research, vol. 1(1), pages 60-69.
  • Handle: RePEc:ibf:gjbres:v:1:y:2007:i:1:p:60-69
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    Citations

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    Cited by:

    1. A. Seetharaman & Vikas Kumar Sahu & A. S. Saravanan & John Rudolph Raj & Indu Niranjan, 2017. "The Impact of Risk Management in Credit Rating Agencies," Risks, MDPI, vol. 5(4), pages 1-16, September.
    2. Matthew Adeolu Abata & Stephen Oseko Migiro, 2016. "Capital Structure and Firm Performance in Nigerian-Listed Companies," Journal of Economics and Behavioral Studies, AMH International, vol. 8(3), pages 54-74.
    3. Sunday Nosa UGBOGBO (Ph.D) & Sunday Nosa UGBOGBO (Ph.D), 2023. "Capital Structure and Corporate Financial Distress of Quoted Non-Financial Firms in Nigeria," International Journal of Research and Innovation in Social Science, International Journal of Research and Innovation in Social Science (IJRISS), vol. 7(6), pages 1302-1314, June.
    4. Adekola Adeola Adebayo & Folajinmi Festus Adegbie & Rafiu Oyesola Salawu, 2021. "Capital Structure and Profitability of Selected Listed Companies in Nigeria," International Journal of Research and Scientific Innovation, International Journal of Research and Scientific Innovation (IJRSI), vol. 8(1), pages 05-22, January.

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