The dynamic relationship between board composition and capital structure of the Nigerian listed firms

Abstract

Among the important decisions that corporate boards have to tackle is the capital structure decision which involved choosing an optimum level of debt-equity ratio. The choice is essential because an appropriate mixture of financing sources may enable firms to reduce the cost of capital and enhance their profitability level. Hence, this research determines the impact of board composition on the capital structure of listed firms in Nigeria. The research analysed the balanced panel data set of 71 Nigerian non-financial listed companies for seven years (2012-2018, by utilising an estimator known as the Generalised Method of Moments (GMM). Evidence emerged from this study signified that the Nigerian listed firms employ lower debt level as their board size grows in number. Similarly, as the percentage of independent directors on the board rises, and when the board chairman serves as the CEO, the listed firms in Nigeria tend to adopt a less levered financial strategy. Also, finding from this research revealed that board gender diversity, foreign directorship and capital structure are positively associated. Thus, suggesting that stringent monitoring by foreign and women directors compels managers to pursue high debt policy to boost firm financial performance. The study recommends that listed firms in Nigeria should embrace the culture of diversity in their boardrooms to enhance their governance system.