Academic journal article Advances in Management

Corporate Governance and Capital Structure: Evidence from Listed Firms in Nigeria Stock Exchange

Academic journal article Advances in Management

Corporate Governance and Capital Structure: Evidence from Listed Firms in Nigeria Stock Exchange

Article excerpt


This study basically examined the relationship between corporate governance and capital structure decisions of listed firms in Nigeria. However, based on the availability of data for the study, corporate governance variables were considered (board size, CEO duality, board composition and managerial ownership) while debt to equity ratio was adopted as the criterion for capital structure. To accomplish this objective, the annual report for the period 2006 -2011 was analyzed. In addition, the study considered a total of 40 listed firms in the Nigerian stock exchange market. The choice of the selected firms' was made based on the capital structure and the equity ownership structure of the listed firms.

Keywords: Capital Structure, Corporate Governance, Nigeria Stock Exchange.

(ProQuest: ... denotes formulae omitted.)


The financial structure of a firm is one of the most critical areas in corporate finance that can affect the whole operations of a firm. One of the basic motives of capital structure management is to reduce the cost of capital to maximize the shareholders wealth. Studies on firm's financial structure can be traced back to the seminal work of Modigliani and Miller14 where they opined that the capital structure of a firm was irrelevant in determining the firm's value and its future performance.

Since the proclamation of Modigliani and Miller14 in 1958, several theories have been developed to explain firms' financing decisions. One of such theories that have gained strong empirical support is the agency theory. The theory posits that capital structure is determined by agency costs arising from conflicts of interest. Since then, discussions on firms' financial decisions have continued to be an issue of interest in the finance literatures.

According to Jirapom et al11, capital structure is one of the most puzzling topics in corporate finance literature. It is often referred to as a firm's financial framework18. Booth, Aivazian, Demirguc-Kunt and Maksimovic described it as the mix of debt and equity capital maintained by a firm. It is also seen a mixture of a variety of long term sources of funds and equity shares including reserves and surpluses of an enterprise. An important decision of a firm is the choice between shareholders' equity and debt. Thus, a firm's financial framework (capital structure) is the specific combination of its debt and shareholders' equity for funding its operation activities.

Therefore, financial decisions affecting firm's capital structure are very salient among firms based on the need to increase investors' return on investment and the economic corporation ability to deal with a competitive environment. Hence, the capital structure of a firm is very important since it is related to the ability of the firm to meet the needs of its stakeholders.

Corporate governance on the other hand is the mechanism and philosophy that entails the processes and structure which facilitate the creation of shareholder value through the management of an organisation affair to ensure the protection of the individual and collective interest of all the stakeholders. According to Keasey et al12, it is the process and structure used to direct and manage the affairs of a company towards enhancing business prospo-ity and corporate accountability with the ultimate objective of realizing long-term shareholder value whilst taking into account the interest of other stakeholders. It is generally associated with the existence of agency problem and its roots can be traced back to separation of ownership and control of the firm.

Agency problems arise as a result of the relationships between shareholders and managers and are based on conflicts of interest within the firm. Hence, corporate governance basically exists to provide the necessary checks and balances between shareholders and management and thus to mitigate agency problems. Thus, firms with better governance quality should suffer less agency conflicts. …

Search by... Author
Show... All Results Primary Sources Peer-reviewed


An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.