The impact of profitability on capital structure and speed of adjustment: An empirical examination of selected firms in Nigerian Stock Exchange

The aim of the study was to investigate the impacts of capital structure on the
performance of Nigerian listed non-financial firms and how these firms adjust to the
target capital structure. We tested the Trade-off theory and the pecking order theory
and the relevance of these theories to Nigerian firms is confirmed. The speed of
adjustment to the target capital structure is determined using both pool OLS and GMM
to ensure the robustness of the finding. The descriptive statistics show that leverage
constitute 63 percent of the capital structure of Nigerian firms, while leverage is
dominated with the short term leverage. We observed that profitability and asset
structure were negatively related to leverage while the size of the firm and non-debt tax
shield were positively related to leverage. The adjustment speed of Nigerian firms is
very high 47% that compares well with studies on non-financial firms done in most
developed countries.