ABSTRACT
The capital structure of firms is a crucial aspect of financial management as it has significant implications on the firm's performance and risk exposure. This study aimed to empirically investigate the determinants of capital structure for non-financial firms in Nigeria, with a focus on how the firm's life cycle stages affect capital structure decisions. The study used a sample of 76 non-financial firms over a ten-year period (2010 to 2019) to analyze the relationship between debt-to-total asset and various independent variables such as firm size, growth opportunities, profitability, asset structure, and firm age.
To capture the different life cycle stages of the firms, dummy variables (DLum1-5) were used, which correspond to Dickinson's (2011) five stages of life cycle models. The study employed the Dynamic System-GMM in its empirical analysis to account for endogeneity and omitted variable biases in the regression analysis. The model estimated the significance of each variable and determines their relationship with capital structure.
The study found that life cycle stages are significant determinants of capital structure for non-financial firms in Nigeria. The introduction stage (LDUM1), maturity stage (LDUM3), and shake-out stage (LDUM4) have a significant positive relationship with capital structure, while the growth stage (LDUM2) and decline stage (LDUM5) are negatively related to capital structure. Firm size and growth opportunities are significant determinants of capital structure across all life cycle stages, and they have an inverse relationship with capital structure. Profitability is only a significant determinant of capital structure in the growth stage (LDUM2) but not across the other stages. Furthermore, asset structure has a significant negative impact on capital structure in the growth stage (LDUM2) and decline stage (LDUM5) but fails to pass the statistical significance test in the other stages. Lastly, firm age did not significantly impact capital structure as it consistently failed the statistical significance test across all life cycle stages. The study provided important insights into the determinants of capital structure for non-financial firms in Nigeria. The findings highlight the importance of considering the firm's life cycle stages when making capital structure decisions. The study recommended that asset managers should be trained to effectively allocate company funds across the life cycle stages. Additionally, managers should focus on firm size and growth opportunities to manage their firm's capital structure effectively. Finally, they should be mindful of the shake-out stage, which represents a crisis stage, as the profit of the firm is threatened, and more debt may become imminent.
