African Journal of Economic Review

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Capital Structure and Firm Performance in Nigeria

Yinusa Olumuyiwa Ganiyu, Ismail Adelopo, Yulia Rodionova, Olawale Luqmon Samuel


This paper examines the impact of capital structure on firm performance in Nigeria as well as test the possibility of non-monotonic relationship between capital structure and firm performance based on the prediction of the agency cost theory of capital structure when firm use debt financing excessively. The study used dynamic panel model on panel data of 115 listed non-financial firms in Nigeria. Specifically, the paper employed the two step generalized method of moments (GMM) estimation method that recognizes the persistence of the dependent variable by including its lag value as an explanatory variable in the regression model. The major findings indicate statistical significant relationship exist between capital structure and firm performance particularly when debt financing is moderately employed. However, the paper found evidence of non-monotonic relationship between capital structure and firm performance when firms in Nigeria employed excessive debt financing which impinged on the performance of firms. The findings support the portability of the agency cost theory in the Nigeria context but with caution considering the facts that firms in Nigeria were largely finance through short term debt as against long term debt financing that was assumed in the agency cost theoretical proposition.


Keywords: capital structure, generalized method of moment, firm performance, Agency cost.


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