Examining the Impact of Stock Volatility on Capital Structure of Listed Nigerian Firms

Abstract

This paper seeks to examine the impact of stock volatility on capital structure choice of listed Nigeria firms in influencing their corporate financing strategy and performance analysis. The research work will examine if western capital structure theories (static trade-off, agency cost and pecking order theories) are applicable to listed Nigeria firms. The work also establishes that the balance of the argument supports the view that good corporate financing strategies impact positively on firms’ performance. The research study analysed 47 listed firms on the Nigeria stock exchange over the period 1997-2007 using OLS regression with the objective of observing firm effect on leverage on observed firms. The theoretical contributions of trade-off, agency and packing order theories were examined in assessing impact of stock volatility on financing patterns for listed Nigerian firms. Results shows that Nigerian firms do not follow observed patterns observed in western countries. In analysing firm leverage, Nigeria firms were found to have a positive non-statistical significant correlation between income volatility and leverage. Results reflect that to a large extent Nigeria firms do not follow the same financing pattern with western countries.