Capital structure and corporate financial distress of manufacturing firms in Nigeria

Fredrick Ikpesu · Eboiyehi Osazemen Chinelo

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Corporate Finance and Governance Corporate Insolvency and Governance Financial Distress and Bankruptcy Prediction

Abstract

This paper investigated the effect of capital structure on corporate financial distress of manufacturing firms in Nigeria by employing panel corrected standard error (PCSE) technique. The variables used in the study are corporate financial distress, capital structure, firm size, assets tangibility, revenue growth, profitability and age of firms. The outcome of the research reveals that capital structure affects corporate financial distress negatively while company age from listing years, profitability and asset tangibility affects corporate financial distress positively. The result further revealed that firm growth and firm size affects financial distress negatively. Policy implication from the study is that managers have to be cautious when designing their capital structure. Also, government should encourage firms to use internally generated fund than external fund by granting preferential tax treatment on their retained earnings. This will encourage investment in growth-oriented strategies. In addition, the Central Bank of Nigeria should direct banks to lower the cost of borrowing for manufacturing firms to ensure financial stability. Key words: Corporate financial distress, capital structure, PCSE, Nigeria.

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References

1984Corporate financing and investment decisions when firms have information that investors do not have 1958The Cost of Capital, Corporation Finance and the Theory of Investment 2008The cost of capital, corporation finance and the theory of investment 1995What Do We Know about Capital Structure? Some Evidence from International Data 1980Financial Ratios and the Probabilistic Prediction of Bankruptcy 2002Testing the pecking order theory of capital structure 2013Predicting financial distress of companies: revisiting the Z-Score and ZETA® models 2009The impact of capital‐structure choice on firm performance: empirical evidence from Egypt

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