Target capital structure for managerial decision making: Dynamics and determinants


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The study examines the dynamics and determinants of target capital structures among manufacturing firms listed on the Nigeria Stock Exchange during the period from 2012 to 2021. The study is motivated by the disparity in the Speed of Adjustment (SOA) to target leverage, which is influenced by firm-specific attributes largely dependent on macroeconomic indices. Therefore, understanding the determinants of SOA to target leverage is germane because no two macro-economic environments are the same. A longitudinal research design is used with a population of 75 manufacturing firms. The sample consists of 42 firms, drawn using a simple random technique. Secondary data is sourced from the annual report. Generalized Method of Moments is the estimation technique. The result shows that manufacturing firms adjust to a target capital structure with a high speed of 72%. This confirms the application of dynamic trade-off theory among listed manufacturing firms in Nigeria. Profitability, firm size, and asset tangibility are significant determinants of SOA to a target capital structure, confirming pecking order, agency, and static trade-off theories, respectively. Tax shelter and growth were not significant determinants. The study concludes that there is evidence of dynamic adjustment to the optimal capital structure of listed manufacturing firms in Nigeria. Governments and policymakers in firms should make effective policies that aid speedy access to long-term funds by these firms to increase their SOA to target capital structure.

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    • Table 1. Theoretical support for target capital structure determinants
    • Table 2. System GMM estimation
    • Table A1. Descriptive statistics
    • Table A2. Correlation result
    • Table A3. Variance Inflation Factor (VIF) test
    • Table A4. Group panel unit root test
    • Table A5. Co-integration test
    • Conceptualization
      Agbonrha-Oghoye Imas Iyoha, Grace Abohiri Igele
    • Data curation
      Agbonrha-Oghoye Imas Iyoha, David Umoru
    • Formal Analysis
      Agbonrha-Oghoye Imas Iyoha
    • Investigation
      Agbonrha-Oghoye Imas Iyoha, Grace Abohiri Igele
    • Methodology
      Agbonrha-Oghoye Imas Iyoha, Grace Abohiri Igele
    • Supervision
      Agbonrha-Oghoye Imas Iyoha, David Umoru, Sadiq Oshoke Akhor
    • Writing – review & editing
      Agbonrha-Oghoye Imas Iyoha, Godwin Ohiokha, David Umoru
    • Funding acquisition
      Godwin Ohiokha, Sadiq Oshoke Akhor
    • Project administration
      Godwin Ohiokha, Sadiq Oshoke Akhor
    • Validation
      Godwin Ohiokha, David Umoru
    • Software
      Sadiq Oshoke Akhor
    • Writing – original draft
      Grace Abohiri Igele