The Determinants of the Capital Structure of Firms in Nigeria: The Financial Managers' Perspectives

The paper examined the considerable factors in deciding on the appropriate amount of equity and debt in the Nigerian banking industry, and the factors influencing banks’ capital structure. Data were gathered through questionnaires administered to the financial managers of 25 listed banks in Nigeria. Cross tabulations and Chi-square were used for data analysis. The result suggests that credit-rating, volatility of earnings and cash flow, bankruptcy or near-bankruptcy, financial distress, transaction costs, fees for issuing debt, and financial flexibility are the important factors in choosing appropriate amount of debt. The most important factor that affects banks’ choice between short- and long-term debts is matching the maturity of debt with life of the asset. The study also reveals that ownership structure and management control, growth and opportunity, profitability, issuing cost, and tax economics associated with debt are the major factors influencing bank’s capital structure. It is, therefore, recommended that banks should adopt a mixed source of financing and choose appropriate ownership structure and management policy.