IDEAS home Printed from https://ideas.repec.org/a/dug/journl/y2010i26p115-119.html
   My bibliography  Save this article

The Financing Behaviour of Firms in a Developing Economy: The Nigerian scenario

Author

Listed:
  • Okoyeuzu Chinwe R.

    (University of Nigeria, Enugu Campus. Department of Banking and Finance)

Abstract

The goal of this study is to ascertain the validity of the asymmetry of information idea in explaining the financing choice of firms in Nigeria. The sample covers 60 firms quoted in the Nigerian Stock Exchange. The Nigerian nation does not have a well developed capital market and so remain heavily on internal funding. Using a regression analysis, this study reveals that leverage is a decreasing function of profitability. This supports the pecking order theory. The current economic problems in Nigeria can be attributed not to too much reliance on financial markets, but to too little. There is some sort of misalignments between the capital market and the money market which is likely to affect the efficiency of one in meeting the financing needs of corporations. There should be complementary roles between the two markets. In Nigeria, this expected complementary roles between the two markets lag. While it makes sense, for instance for banks to brave up towards meeting the long term financing needs of firms, it is also very necessary for the other fund providers to design financing products that would help fill up arising financing gaps not covered by banks. We recommend that firms would have to device other strategic ways of diversifying their funding sources. One is by balancing their investments in both fixed and current assets.

Suggested Citation

  • Okoyeuzu Chinwe R., 2010. "The Financing Behaviour of Firms in a Developing Economy: The Nigerian scenario," EuroEconomica, Danubius University of Galati, issue 26, pages 115-119, November.
    • Handle: RePEc:dug:journl:y:2010:i:26:p:115-119
    as

    Download full text from publisher

    File URL: http://journals.univ-danubius.ro/index.php/euroeconomica/article/view/721/658
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Jensen, Michael C, 1986. "Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers," American Economic Review, American Economic Association, vol. 76(2), pages 323-329, May.
    2. Myers, Stewart C. & Majluf, Nicholas S., 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Journal of Financial Economics, Elsevier, vol. 13(2), pages 187-221, June.
    3. Stewart C. Myers & Nicholas S. Majluf, 1984. "Corporate Financing and Investment Decisions When Firms Have InformationThat Investors Do Not Have," NBER Working Papers 1396, National Bureau of Economic Research, Inc.
    4. Eugene F. Fama, 2002. "Testing Trade-Off and Pecking Order Predictions About Dividends and Debt," The Review of Financial Studies, Society for Financial Studies, vol. 15(1), pages 1-33, March.
    5. Amy Dittmar, 2004. "Capital Structure in Corporate Spin-Offs," The Journal of Business, University of Chicago Press, vol. 77(1), pages 9-44, January.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Syed Muhammad Javed & Agha Jahanzeb & Saif-ur-Rehman, 2012. "A Critical Review of Capital Structure Theories," Information Management and Business Review, AMH International, vol. 4(11), pages 553-557.
    2. Kim, Sang-Joon & Bae, John & Oh, Hannah, 2019. "Financing strategically: The moderation effect of marketing activities on the bifurcated relationship between debt level and firm valuation of small and medium enterprises," The North American Journal of Economics and Finance, Elsevier, vol. 48(C), pages 663-681.
    3. Drobetz, Wolfgang & Pensa, Pascal & Wöhle, Claudia B., 2004. "Kapitalstrukturtheorie in Theorie und Praxis: Ergebnisse einer Fragebogenuntersuchung," Working papers 2004/09, Faculty of Business and Economics - University of Basel.
    4. Luc Renneboog & Peter G. Szilagyi, 2008. "Corporate Restructuring and Bondholder Wealth," European Financial Management, European Financial Management Association, vol. 14(4), pages 792-819, September.
    5. Rana El Bahsh & Ali Alattar & Aziz N. Yusuf, 2018. "Firm, Industry and Country Level Determinants of Capital Structure: Evidence from Jordan," International Journal of Economics and Financial Issues, Econjournals, vol. 8(2), pages 175-190.
    6. Xiao, He, 2022. "Environmental regulation and firm capital structure dynamics," Economic Analysis and Policy, Elsevier, vol. 76(C), pages 770-787.
    7. Imran Yousaf & Arshad Hassan, 2016. "Effect of Family Control on Corporate Financing Decisions: A Case of Pakistan," PIDE-Working Papers 2016:138, Pakistan Institute of Development Economics.
    8. Elif Acar & Gamze Vural & Emin Hüseyin Çetenak, 2020. "Evidence for Financial Hierarchy Theory in Capital Structure Decisions: Data from BIST Companies," Bogazici Journal, Review of Social, Economic and Administrative Studies, Bogazici University, Department of Economics, vol. 34(1), pages 29-50.
    9. Muhammad Yusuf Amin & Amanat Ali & Bashir Khan, 2019. "Capital Structure of Chinese Firms Across different Sectors: Does Ownership Structure Matter?," Global Economics Review, Humanity Only, vol. 4(2), pages 70-82, June.
    10. Brav, Alon & Graham, John R. & Harvey, Campbell R. & Michaely, Roni, 2005. "Payout policy in the 21st century," Journal of Financial Economics, Elsevier, vol. 77(3), pages 483-527, September.
    11. ElBannan, Mona A., 2017. "Stock market liquidity, family ownership, and capital structure choices in an emerging country," Emerging Markets Review, Elsevier, vol. 33(C), pages 201-231.
    12. Wu, Xueping & Au Yeung, Chau Kin, 2012. "Firm growth type and capital structure persistence," Journal of Banking & Finance, Elsevier, vol. 36(12), pages 3427-3443.
    13. Nikolaos Daskalakis & Eleni Tsota, 2023. "Reintroducing Industry Effects in Capital Structure Determination of SMEs," Business & Entrepreneurship Journal, SCIENPRESS Ltd, vol. 12(2), pages 1-4.
    14. Isil Erol & Dogan Tirtiroglu, 2011. "Concentrated Ownership, No Dividend Payout Requirement and Capital Structure of REITs: Evidence from Turkey," The Journal of Real Estate Finance and Economics, Springer, vol. 43(1), pages 174-204, July.
    15. Miglo, Anton & Zenkevich, Nikolay, 2005. "Non-hierarchical signalling: two-stage financing game," MPRA Paper 1264, University Library of Munich, Germany, revised 2006.
    16. Maclachlan, Iain C, 2007. "An empirical study of corporate bond pricing with unobserved capital structure dynamics," MPRA Paper 28416, University Library of Munich, Germany.
    17. Michael Pfaffermayr & Matthias Stöckl & Hannes Winner, 2013. "Capital Structure, Corporate Taxation and Firm Age," Fiscal Studies, Institute for Fiscal Studies, vol. 34(1), pages 109-135, March.
    18. Peter Gibbard & Ibrahim Stevens, 2011. "Corporate debt and financial balance sheet adjustment: a comparison of the United States, the United Kingdom, France and Germany," Annals of Finance, Springer, vol. 7(1), pages 95-118, February.
    19. Eduardo K. Kayo & Eduardo Ottoboni Brunaldi & Dante M. Aldrighi, 2018. "Capital Structure Adjustment in Brazilian Family Firms," RAC - Revista de Administração Contemporânea (Journal of Contemporary Administration), ANPAD - Associação Nacional de Pós-Graduação e Pesquisa em Administração, vol. 22(1), pages 92-114.
    20. Feld, Lars P. & Heckemeyer, Jost H. & Overesch, Michael, 2013. "Capital structure choice and company taxation: A meta-study," Journal of Banking & Finance, Elsevier, vol. 37(8), pages 2850-2866.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:dug:journl:y:2010:i:26:p:115-119. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Florian Nuta (email available below). General contact details of provider: https://edirc.repec.org/data/fedanro.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.