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Determinant of Capital Structure of Listed Insurance Firms in Nigeria Stock Exchange

Determinant of Capital Structure of Listed Insurance Firms in Nigeria Stock Exchange


This focus of this study is to examine the determinant of listed insurance firms in Nigeria stock exchange. The purpose of the study was to determine; the effect of profitability on debt to equity ratio, to ascertain the effect of tangibility on debt to equity ratio. This study adopts the ex-post facto i.e. after the fact or event. The paper uses secondary data only extracted from the Annual Reports and Accounts of 16 sampled firms out of the insurance companies in Nigeria representing 50% of the population. Random sampling technique is employed to select the firms so as to ensure that all the firms have equal chance of representation and also depending on availability of data. Multiple regression is used as a tool of analysis for the study covering a period of 11 years (2006-2016) using Statistical Package for Social Scientists (SPSS). The population of this study is the thirty-two (32) quoted insurance firms on the Nigerian Stock Exchange (NSE) as at 31st December, 2016. The result of the study revealed that profitability has a significant negative effect on Debt to Equity Ratio; tangibility has an insignificant positive effect on Debt to Equity Ratio. The study recommended that Managers should consider the effect of profitability on capital structure when making financial decisions, Insurance Firms should increase their retained earnings as much as possible and plough it back into the business so as to make external financing (debt or equity or a combination of both) a last resort according to the pecking order theory, the effect of tangibility on capital structure is vital in making decisions on debt and equity financing, emphasis should be on increasing total assets and not just fixed tangible Assets so as to minimize external borrowing and possible liquidation thereby incurring Bankruptcy Costs.

Keywords: Capital Structure; Insurance Firms; Nigeria Stock Exchange; Debt to Equity Ratio

1Ugwu, Kevin Okoh, PhD., 2Uzoma Friday Christopher, and 3Obasuyi, George D.

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