ABSTRACT
This study empirically test whether quoted firms in Nigeria followed the pecking order and signaling theories in their financing decisions for a period of 13 years (2006 to 2018). The study employed the descriptive statistics, correlation coefficient and the Generalized Method of Moment (GMM) to Analyze the data which covers the following variable - Change In Debt (CID), Cash Dividend Payment (CDP), Investment (INV), Change in Working Capital (CWC), Cash Flow (CFL), Share Price (SP), Change in Long Term Debt (CLTD), Firm Size (FSIZ) and Firm Age (FAGE)) in three specified models.
The empirical results generally indicate that Nigerian quoted firms do not follow the pecking order theory. However, the finding seems to be mixed when it comes to signaling theory, with the use of total debt and long term debt with respect to share price. Accordingly, while firms follow the pecking order theory with the use of total debt/leverage, they do not follow same with the use of long term debt/leverage. Also, cash dividend payment has significant negative relationship with change in debt, change in working capital and cash flow has significant positive relationship with change in debt, but investment does not have any impact on change in debt. On the other hand, change in debt, firm age and firm sizes are seen to be significant and positively related to share price.
This study recommends among others that, in as much as the Nigerian firms should conform to the pecking order theory, management and relevant policy makers in the industry should evolve and implement the right policies that would not only increase their cash flow, but will at the same time be positively related to leverage in order to send the right signals to investors and creditors that the firms are credible, with good future prospects because they are well able to service debt obligations from their positive cash flow.
