However, the Capital Asset Pricing Model (CAPM) and Price Earnings (P/E) Ratio- Growth relation lack strong empirical support. Employing correlation and regression analyses, this study confirms the Modigliani-Miller (MM) capital structure irrelevance theorem, information content of dividends’ hypothesis, stock returns-systematic factors relation, and inflation-hedging capacity of common stocks. Secondary data, obtained from official sources, were utilized. In particular, this study examines the empirical conformity of some finance theories in Nigeria since most of such evidence are based on developed markets and evidence on emerging markets like Nigeria remains scanty. This study investigates the investment performance of common stocks in Nigeria. The investment performance of capital market securities should enhance the contribution of the capital market to economic development. Despite the growth in market capitalization, it is noted that when measured as a percentage of the Gross Domestic Product (GDP), it is still quite low. The vast potential of the nation’s secondary market is clearly indicated in its high rating by the International Finance Corporation (IFC) and Standard & Poors with respect to investment returns in dollar terms.
The study recommends the use of leases for financially-and collateral-constrained firms.įrom the mid-1990s, the Nigerian Stock Exchange (NSE) has witnessed remarkable growth mainly due to privatization, new minimum capital requirements, improvements in market infrastructure, amongst a host of other factors. In order words, asymmetric information explains why smaller, less profitable, less liquid firms with more risky intangible assets and which are low dividend-payers end up relying primarily on debt financing and vice versa.
The pecking order beats the trade-off model based on the signs of coefficients of firm-specific characteristics. The results were, at best, mixed with respect to the portability of pecking order, target adjustment, trade-off, agency and market conditions models. First, the factors that exert positive influence on corporate borrowing include asset intangibility, firm age and expected inflation while those factors that exert negative influence on capital structure include asset tangibility, growth, size, volatility of earnings, profitability, liquidity, dividend-paying status and uniqueness of industry. Using panel data least squares regression, modified to weighted (cross section-and period-) models, the research documents the following findings. The population of study comprises all non-financial corporations quoted on the Nigerian Stock Exchange (NSE) for the period 1999-2014 out of which 50 companies that met the minimum data criteria were utilized. This study investigates the determinants of capital structure in Nigeria. Empirical work on capital structure in emerging markets like Nigeria has been limited and met with low explanatory power.
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