The Influence of Capital Structure Theories and Dividend Policies

This study critically surveyed the literature on capital structure decisions and dividend policies in the context of quoted firms in order to identify the leading theoretical and empirical issues in this area. The thesis main aim was to add empirical evidence to the corporate finance literature by looking at the two main financing issues namely firms¿ payout policies and capital structure decisions. The first theoretical component of the survey attempted to evaluate the two competing theories of capital structure with the purpose of finding the best empirical explanation for corporate financing choice of a cross section of 27 Nigerian quoted companies. A model was developed to represent the static trade-off and the pecking order theory of Myers and Majluf as used in the work of De Medeiros and Daher (2004) and Eboh (2004). By using ordinary least square, we aimed at establishing which of the two theories has the best explanatory power for Nigerian firms. Data pertaining to 1996 through 2006 were used. The result of our estimation shows that both of them appear to give good description of the financing policies of those firms for the period under review.