African Journal of Economic and Management Studies

Purpose – The purpose of this paper is to examine whether industry-specific factors play a more significant role in the financing decisions of firms than firm-specific characteristics; and to determine the degree of uniformity that exists between a firm's capital structure and industry financing patterns in Nigeria.

Design/methodology/approach – The described study makes use of fixed effects panel regression techniques. The dataset, which covers the period 1990-2006, comes from a sample of 71 non-financial firms quoted in the Nigerian Stock Exchange.

Findings – The study finds support for both the pecking order theory and the trade-off theory of capital structure in Nigeria. Firms/industries that are more profitable have less proportion of debt, and those that have a higher level of asset tangibility use more long-term finances. Empirically, the study reveals that the set of factors that explain firm-specific determinants of capital structure do not statistically and significantly explain the way industries follow finance.

Practical implications – The study affirms the need for firms to invest reasonable resources in setting up capital structure policies, rather than herd along industry patterns.

Originality/value – Though studies on industry herding and financial leverage are not new, the paper gives interesting insights into the nature of the relationship in an atmosphere of shortage of capital supply and poor corporate performance.