The Impact of Debt on Capital Structure: Empirical Evidence from Nigeria

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Gbalam Peter Eze
Akwarandu Uzochukwu


This study evaluates the impact of tax shield on capital structure of quoted non-financial firms in Nigeria. Five hypotheses were formulated following the dependent variables of Long Term Debt Ratio and Short Term Debt Ratio. The independent variables employed for this study are: Operating Income, Non-Debt Tax Shield, Debt Tax Shield, Trade Credit Ratio, Firm Size and Firm Leverage. This study is based on ex-post facto research design and made use of panel data set collected from thirty five (35) non-financial companies over a five year period of 2015 and 2019 financial year.  We analyzed the data set using panel least square regression analysis. Our finding supports the trade-off theory developed by Modigliani and Miller’s [1] who explained that, “the relevance of debt with the existence of taxes is beneficial for the formation of a firm’s capital structure and serves to shield earnings from taxes. The result showed that both variables of debt tax shield and firm leverage significantly impact on capital structure of non-financial firms in Nigeria during the period under investigation. The study recommends among others that concerted efforts should be made by financial regulatory bodies to stabilize the tax structure/system in Nigeria. This is based on the fact that reduction of tax frictions not only increases capital buffers for all firms; it also decreases the “Risk Taking” levels of firm managers.

Debt, capital, structure

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How to Cite
Eze, G. P., & Uzochukwu, A. (2020). The Impact of Debt on Capital Structure: Empirical Evidence from Nigeria. Asian Journal of Economics, Business and Accounting, 14(4), 7-17.
Data Article


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