Capital Structure Essay

7948 Words 32 Pages
International Journal of Business and Social Science

Vol. 2 No. 19 [Special Issue - October 2011]

Perceived Relationship between Corporate Capital Structure and Firm Value in Nigeria
Semiu Babatunde ADEYEMI Department of Accounting University of Lagos Lagos, Nigeria Collins Sankay OBOH Department of Accounting University of Lagos Lagos, Nigeria Abstract
This study examined the empirical effects of corporate capital structure (financial leverage) on the market value of a selection of firms listed on the Nigerian Stock Exchange. Both primary and secondary data were obtained for analysis employing both descriptive and inferential statistics for analysis. A sample size of 150 respondents and 90 firms were selected for both primary data
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But in the last decades, several theories have emerged explaining firms’ capital structure and the resultant effects on their market values. These theories include the pecking order theory by Donaldson, (1961), the capital structure relevance theory by Modigliani and Miller (1963), the agency costs theory, the capital signaling theory and the trade-off theory (Bokpin and Isshaq, 2008). In Nigeria, financial constraints have been a major factor affecting corporate firms’ performance. According to Salawu and Agboola (2008), the move towards a free market, coupled with the widening and deepening of various financial markets has provided the basis for the corporate sectors to optimally determine their capital structure. Mainly, the corporate sector is characterized by a large number of firms operating in a largely deregulated and increasingly competitive environment. Since 1987, financial liberalization has changed the operating environment of firms, by giving more flexibility to the Nigerian financial managers in choosing their firms’ capital structure. Alfred (2007) suggested that a firm’s capital structure implies the proportion of debt and equity in the total capital structure of the firm. Pandey (1999) differentiated between capital structure and financial structure by affirming that the various means used to raise funds

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