Asset Structure and Capital Structure Correlation: Evidence from Non-Finance firms in Nigeria

Abstract

The study investigates asset structure and capital structure correlation in Nigeria drawing samples from listed non-finance firms on the floor of the Nigerian Exchange Group market. While capital structure proxied by debt to asset ratio or leverage is the dependent variable, the independent variables adopted for this study includes asset tangibility, intangible asset ratio, non-current asset ratio and cash to asset. Data set employed in this study spans through the periods between 2014 and 2023. The econometric techniques adopted in this study are the Pearson correlation coefficient (correlation matrix). In the light of this, the empirical result of this study leads to the conclusion that out of the four independent variables adopted in this study, only intangible asset ratio and cash to asset ratio significantly correlate with capital structure. Specifically, we conclude that an increase in intangible asset ratio will significantly increase debt financing of listed non-finance firms in Nigeria. However, an increase in cash to asset ratio will significantly decrease debt financing of listed non-finance firms in Nigeria. Succinctly, we recommend that firms should invest more on intangible assets since large holdings of intangible assets may imply that a firm has a stable source of return, which provides more internally generated funds and discourages it from turning to external financing.