IIARD International Institute of Academic Research and Development

IIARD INTERNATIONAL JOURNAL OF BANKING AND FINANCE RESEARCH (IJBFR )

E-ISSN 2695-1886
P-ISSN 2672-4979
VOL. 10 NO. 5 2024
DOI: 10.56201/ijbfr.v10.no5.2024.pg1.24

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Risk and Capital Structure Policy of Quoted Manufacturing Firms: Evidence from Nigeria

Daniel Ikezam Nwonodi

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Abstract

This study examined the effect of risk on capital structure of quoted manufacturing firms in Nigeria. Panel data was sourced from financial statement of the manufacturing firm’s from 2014- 2023. Capital structure was poxied by debt equity ratio while risk was poxied by exchange rate risk, equity price risk, interest rate risk, operational risk, leverage risk, liquidity risk. Panel data methodology was employed while the fixed effects model was used as estimation technique at 5% level of significance. Fixed effects, random effects and pooled estimates were tested while the Hausman test was used to determine the best fit. Panel unit roots and panel cointegration analysis were conducted on the study. The study found that interest rate risk, consume price risk and equity price have positive effect while leverage risk and consumer price risk have negative effect on the capital structure. Findings further revealed that interest rate risk have positive effect while equity price risk, consumer price risk and exchange risk have negative effect on the capital structure of the quoted manufacturing firms. From the findings, the study concludes that risk has significant effect on capital structure of the quoted manufacturing firms in Nigeria. The study recommends that the need for the manufacturing firms to adopt more appropriate measures for managing liquidity risks and ensuring compliance at all times and at all levels, policy directed towards management of the effect of consumer price index on capital structure of the quoted manufacturing firms and The need for management to direct financing policy toward optimal capital structure to reduce the effect of leverage risk on shareholders’ value of the quoted manufacturing firm. This can be achieved through proper planning and management of the financing decisions of the firms.

keywords:

Risk, Capital Structure Policy, Manufacturing Firms, Nigeria

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