The Impact of Financial Development on Capital Structure of Firms in Nigeria

This paper analyzed the relative contribution of financial development on capital structure of ten selected manufacturing firms’ on the Nigerian Stock Exchange for the period 2002 to 2015. The financial sector of any economy plays an indispensable role in the growth firms; it is therefore important to examine the contribution of financial development towards capital structure of firms in Nigeria; given that the capital structure of a firm contributes significantly to its performance. This paper builds on previous studies by examining the significance of financial development in determining the capital structure of listed firms on the Nigerian Stock Exchange, which has not been considered by previous indigenous studies. The study employed panel ordinary least square technique. The regression estimate showed that the ratio of stock market capitalization to gross domestic product (a measure of stock market development) had positive and insignificant effect on firms’ capital structure while the ratio of credit to the private sector to gross domestic product (a measure of banking sector development) had positive and significant effect on firms’ capital structure. This implies that financial development (proxy by banking sector development) contributes to the growth of capital structure of firms in Nigeria. The contribution of this paper is that in addition to other factors identified in the literature, financial development strongly influences firms’ capital structure in Nigeria