The discussion on how firms raise capital with regards to instruments used to finance investment decisions have generated a lot of academic debate amongst scholar’s in finance in recent past with scholar’s examining plausible reason why listed firms raise capital through primary listing, secondary listing or issuing debt using different combinations of instruments such ordinary equity, debt, hybrid securities such as preference shares, convertible and warrant debt etc.
Raising capital can be done through initial public offerings by private firms that have just gone public or by listed firms to raise additional equity through seasoned equity issue. The ...view middle of the document...
In the past four decade, much of the research on capital structure by academicians has advanced theoretical models to explain the capital structure patterns for firms and also to provide empirical evidence concerning whether the theoretical models have explanatory power when applied in real business world. Examining reasons behind the predilection of firms choosing their financing patterns the contributions of Modigliani and Miller's (1958, 1963) on the irrelevance of capital structure and tax shield advantage sets the stage upon which several capital structure theories have been developed.
Empirically, several studies have been conducted to investigate the relevance of capital structure in explaining a firms financing behaviour, amongst this the static trade-off theory, agency cost and pecking order model appears to come across strongly. The purpose of this study is to develop some preliminary ground work upon which a more detailed evaluation research could be based on. It is hoped to answer the question whether, and how closely, does the determinants of Nigeria firms’ capital structure support the Western finance theories (static trade-off, agency cost and pecking order models) while providing answers to Nigeria firms financing choice as it relates to their financial performance.
The main aim of this research is to assess the applicability of capital structure theories in determining and explaining choice of listed firms financing decisions in Nigeria. The study will look into the methods and tools reported in the literature and/or applied in practice.
The major objective of this research is to determine:
1. Whether the main theories of capital structure (trade-off, agency and pecking order theories) explains financing behaviour for listed firms in Nigeria.
2. The impact of size on choice of capital structure for listed firms in Nigeria.
3. To examine the impact of stock volatility on choice of capital structure for listed firms in Nigeria.
4. To examine the impact of assets tangibility on choice of capital structure for listed firms in Nigeria.
Generally previous studies on firms financing decisions have concentrated on testing efficiency, volatility and returns, liquidity and integration with world stock markets. Only recently, from the early 1990s, very few have tried to address the role of financial markets (with emphasis on banks rather than stock markets) in economic development Levine and Zervos (1993); Levine (1996), Bekaert and Harvey (1997), Bekaert, Harvey and Lundblad (2001). Very few have made some reference to Africa (Bekaert, Harvey and Lundblad (2001). The few African countries included in these researches are those that are relatively older, bigger or are performing better than others. Of interest have been stock markets such as the Johannesburg, Ghana, Nigeria, Lusaka and Zimbabwe stock exchanges.
The thesis proposes to link the literature on choice of corporate...