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ABSTRACT
The study empirically tests the trade- off theory of capital structure in Nigeria. The objective of the study is to examine the effect of firm’s profitability on target debt ratio in Nigeria, to investigate the effect of firm’s growth on target debt ratio in Nigeria, to ascertain the effect of non-debt tax shield on target debt ratio in Nigeria and to assess the effect of firm’s size on target debt ratio in Nigeria. The research question is what extent does firm’s profitability affect target debt ratio in Nigeria, to what extent does firm growth affect target debt ratio in Nigeria, what is the effect of non-debt tax shield on target debt ratio in Nigeria and to what extent does firm’s size affect target debt ratio in Nigeria? Secondary data were collected from a sampled of 26 listed companies made up of consumer goods and industrial goods companies in the Nigerian Stock Exchange for the period of 2010 to 2020 while panel data regression technique was used to test the formulated hypotheses. The regression results revealed that firm profitability has a negative and significant effect on target debt ratio at 5% level of significance, firm growth has a negative and insignificant effect on target debt ratio, non-tax shield has a negative and insignificant effect on target debt ratio, firm size has a negative and insignificant effect on target debt ratio and firm age has a positive and insignificant effect on target debt ratio. The study recommended that management of Nigerian listed consumer goods and industrial goods companies should seek for a balance in their capital structure, by keeping serious watch over key profitability boosting variables.
