DETERMINANTS OF CAPITAL STRUCTURE IN NIGERIAN OIL AND GAS SECTOR
AbstractSubject matter: The Oil and Gas sector no doubt is Nigeria’s topmost foreign exchange earner and determines the country’s gross domestic products (GDP) as well as the yardstick for Nigeria’s national annual budget metrics. The prime of place of this sector’s performance makes its funding (capital structure) very vital to the respective companies and overall performance of the economy. Goal: This study therefore examines the determinants of capital structure decisions in the Oil and Gas sector. Tasks: Ultimately, the outcome of this study would benefit the Oil and Gas companies in making their capital structure decisions on preferred source of capital (loans or equity or a combination), the sector as a whole in terms of capacity and the regulatory authority in their assets performance monitoring. Method: The investigation has been performed using panel data procedure for a sample of seven Oil and Gas companies listed on the Nigerian Stock Exchange during 2008–2019. The study uses leverage as the dependent variable and five explanatory variables namely, liquidity, size, tangibility, non-debt tax shield and profitability. The study employed infoview (9.0) statistical software which assisted greatly in the understanding of the behaviour of variables used and the final results. Results: The results show that Liquidity has a negative relationship with leverage unlike other variables that have positive and relationship with the dependent variable. The relationship established between liquidity and leverage confirms that most of the companies under review look inwards in their financing activities (and may consider external financing for critical expansion and tax savings), our findings further reveal that the relationships between the variables is in tandem with the pecking order theory. Conclusions: The research concludes that there exists a relationship between leverage (capital structure) and the various determinants above. The research recommends that policy makers should consider the restructuring of the equities market to pave ways for more participatory financing especially now that the investors’ confidence is gradually building up, develop the bonds market and also seek flexible conditions for accessing loans especially to the larger firms in the oil and gas industry.
Booth, L., Aivazian, V., Demirguc-Kunt, A., Maksimovic, V (2001), "Capital Structures In Developing Countries", Journal of Finance, No. 56 (1), P. 87–130.
Durand, D. (1959), Costs of Debt and Equity Funds for Business: Trends and Problems of Measurement reprinted in The Management of Corporate Capital, Ezra Solomon (ed), The Free Press.
Eriotis, N, Vasiliou, D, Ventoura-Neokosmidi, Z. (2007), "How firm characteristics affect capital structure: an empirical study", Managerial Finance, No. 33 (5), P. 321–331. DOI: 10.1108/0307/4350710739605
Horne, J. C. V (2002), Financial Management and Policy, 12th Edition, Stanford University, Pearson.
Jensen, M., Meckling, W. (1976), "The Theory of The Firm: Managerial Behaviour, Agency Costs, And Ownership Structure", Journal of Financial Economics, No. 3 (4), P. 305–360.
Lemma, T., Negash, M. (2014), "Determinants of the adjustment speed of capital structure: Evidence from developing economies", Journal of Applied Accounting Research, No. 15 (1), P. 64–99.
Modigliani, F., Miller, H. M. (1958), "The cost of capital, corporation finance and theory of investment", The American Economic Review, No. 48 (3), P. 261–297.
Morellec, E. (2001), "Asset liquidity, capital structure and secured debt", Journal of Financial Economics, No. 61, P. 173–206.
Ogebe, O. P., Ogebe, J. O., Alewi, K. (2013), "The impact of capital structure on firm performance in Nigeria", available at : http://mpra.ub.uni-muechen.de./45986
Onaolapo, A. A., Kajola, S. O. (2010), "Capital structure and firm performance: evidence from Nigeria", European Journal of Economics, Finance and Administrative Sciences, No. 25, P. 70-82.
Pandey, I. M. (2004), "Capital Structure, profitability and market structure: Evidence from Malaysia". The Asian Pacific Journal of Economics & Business, No. 8, P. 78–94.
Pandey, A., Singh, M. (2015), "Capital Structure determinants: a literature review", African J. Accounting, Auditing and Finance, No. 4 (2), P. 163–176.
Pouraghajan, A., Malakian, E. (2012), "The relationship between capital structure and firm performance evaluation measures: Evidence from the Tehran stock exchange", International Journal of Business and Commerce, No. 1 (9), P. 166–181.
Ramadan, Z. S., Ramadan, I. Z. (2015), "Capital structure and firm’s performance of Jordanian manufacturing sector", International Journal of Economics and Finance, No. 7 (6), P. 45–67.
Ross, S. (1977), "The Determination of Financial Structure: The Incentive-Signaling Approach", Bell Journal of Economics, No. 8 (spring), P. 23−40.
Tewara, M. (2016), "A study on the determinants of capital structure and profitability", Journal of Financial Economics, No. 26 (1), P. 3–27.
Abstract views: 14 PDF Downloads: 23
Our journal abides by the Creative Commons copyright rights and permissions for open access journals.
Authors who publish with this journal agree to the following terms:
Authors hold the copyright without restrictions and grant the journal right of first publication with the work simultaneously licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License (CC BY-NC-SA 4.0) that allows others to share the work with an acknowledgment of the work's authorship and initial publication in this journal.
Authors are able to enter into separate, additional contractual arrangements for the non-commercial and non-exclusive distribution of the journal's published version of the work (e.g., post it to an institutional repository or publish it in a book), with an acknowledgment of its initial publication in this journal.
Authors are permitted and encouraged to post their published work online (e.g., in institutional repositories or on their website) as it can lead to productive exchanges, as well as earlier and greater citation of published work.