Economics at your fingertips  

Dynamic Model of Optimal Capital Structure: Evidence from Nigerian Listed Firms

Rubi Ahmad () and Oyebola Fatima Etudaiye-Muhtar

Global Business Review, 2017, vol. 18, issue 3, 590-604

Abstract: Examination of optimal capital structure in financial markets with imperfections suggests that when deviations from optimal capital structure occur, adjustment costs may prevent firms from moving towards target capital structure. However, previous studies on the capital structure of non-financial firms in Nigeria did not consider these imperfections and adjustment costs. It is against this background that this study investigates the dynamic adjustment to target capital structure by non-financial firms listed on the Nigerian Stock Exchange. By utilizing a framework that provides for the determination of adjustment costs, the results reveal the existence of dynamic adjustment to optimal capital structure suggesting attempts made by the sampled firms to maximize shareholders wealth. A comparison of the adjustment costs with those of firms in more developed economies shows that Nigerian firms have higher costs of adjustment indicating that the level of development of the market is important in lowering transaction costs. In addition, tangibility of assets, non-debt tax shield, growth opportunity, firm size, profitability and inflation significantly influence Nigerian firms’ optimal capital structure.

Keywords: Adjustment costs; dynamic trade-off theory; generalized method of moments; Nigeria (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2) Track citations by RSS feed

Downloads: (external link) (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link:

DOI: 10.1177/0972150917692068

Access Statistics for this article

More articles in Global Business Review from International Management Institute
Bibliographic data for series maintained by SAGE Publications ().

Page updated 2023-06-15
Handle: RePEc:sae:globus:v:18:y:2017:i:3:p:590-604