IIARD International Institute of Academic Research and Development

Journal of Accounting and Financial Management (JAFM )

E-ISSN 2504-8856
P-ISSN 2695-2211
VOL. 8 NO. 7 2022
DOI: https://doi.org/10.56201/jafm.v8.no7.2022.pg64.80

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Corporate Governance Practices and Capital Structure Decisions: A Two-Sector Comparative Analysis

Usman, O. A; Alimi, A.A and Adeoye, M.A

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Abstract

Globally, many corporate failures and scandals can be attributed to inherent poor corporate governance practices and inappropriate mix of capital structure within the organization, which has led to poor performance. Meanwhile, the capital structure with the optimum balance of debt and equity is a crucial decision made by the Board of Directors to make companies successful. Specifically, the study determines the strength and direction of the relationship between board characteristics and the leverage ratio of selected consumer and industrial sectors in Nigeria. Secondary data were utilized for the study and sourced from the annual financial reports of the sampled thirteen consumer and industrial goods companies for the period of nine years between 2012 to 2020. The data were analyzed using both descriptive and inferential statistics to achieve the study objectives. Pairwise correlation and the granger causality test were used to determine the strength and direction of the relationship between board characteristics and the leverage ratio of selected companies in Nigeria. Findings revealed that both board independence (BIND) and board gender diversity (BGD) have a positive relationship with leverage (LEVR) while other variables are negatively correlated with it for both companies. Further findings revealed that only corporate governance variables that have a significant impact on consumer goods firms’ leverage also have a causal relationship with it whereas for industrial goods both the board size (BDSZ) and CEO pay slice (CEPS) have a uni-directional relationship that runs from leverage. It was concluded that the relationship between corporate governance practices and leverage can be sector-sensitive. It is therefore recommended that manufacturing companies in the country should put in place strict evaluation mechanisms to identify the most appropriate board characteristics that will help to select an optimum balance of capital structure at all t

keywords:

Corporate governance, Capital structure, industrial sector, Consumer sector, Board characteristics and leverage.

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