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ABSTRACT
The study examines the effect of capital structure on MFBs performance in Nigeria within the pecking order theory. The study employed the descriptive statistics, correlation analysis, Augmented Dickey-Fuller unit root test and the Ordinary Least Square (OLS) methodology to analyze the quarterly time series data sourced from CBN Statistical Bulletin. The findings specifically found that leverage has significant positive effect on firm microfinance banks performance. Liquidity has a significant negative effect on banks performance in Nigeria. Firm size did not significantly affect banks performance during the studied period. Inflation rate negatively impact MFBs performance in a nonsignificantly way. Interest rate on the other hand has significant negative influence on MFBs performance during the studied period. Finally, firm performance has a significant negative effect on leverage to confirm the validity and applicability of the pecking order theory in the capital structure of MFBs. The study concludes that capital structure, liquidity and interest rate are significant determinant of firm performance and the pecking order theory is not only valid and followed in the capital structure decision of these banks, it also occupy first order determinants in capital structure decision of MFBs in Nigeria during the studied period.
