Testing static tradeoff theory against pecking order models of capital structure in Nigerian quoted firms

Abstract

We test two models with the purpose of finding the best empirical explanation for corporate financing choice of a cross section of 27 Nigerian quoted companies. The models were developed to represent the Static tradeoff Theory and the Pecking order Theory of capital structure with a view to make
comparison between theoretical predictions and empirical results. Data pertaining to 1996 through 2006 were used. By using ordinary least square multiple regression methods, we aim at establishing which of the two theories has the best explanatory power for Nigerian firms. The analysis of the outcomes led to the conclusion that both of them appears to be a good description of the financing policies of those firms for the period under review.