The Determinants of Capital Structure : A Comparison of Financial and Non-Financial Firms in a Regulated Developing Country - Nigeria

The purpose of the study is to investigate the differences in the capital structure determinants between financial and non-financial firms. In other words, to what extent does the determinants differ between the two groups of firm, especially in a developing economy. The authors adopt a quantitative approach using balanced panel data drawn from financial (banks) and non-financial firms in Nigeria. The study indicates significant differences between the two sets of firms. In addition to regulation, banks in Nigeria tend to be more leveraged when they are profitable, thereby lending credence to the trade-off theory. However, non-financial firms tend to follow the pecking order theory in that the more profitable the firms are, the less leveraged they appear to be. Further, the study shows that changes in the economy influence the capital structure of banks more significantly than non-financial firms. Additionally, the result indicates that banks adjust their leverage level faster at a speed of 69% than manufacturing firms at 41%. The study contributes to the growing body of knowledge in capital structure determinants and in particular focusing on the differences between financial and non-financial firms in a developing economy