IWEDI, Marshal
Department of Banking and Finance
Faculty of Management
Rivers State University Port Harcourt
This study examined effects of macroeconomic factors on financing decisions of industrial goods
manufacturing firms in Nigeria. The study modelled debt to equity ratio as the function of inflation rate,
nominal interest rate and real interest rate. Panel data were sourced from central bank of Nigeria statistical
bulletin and financial statement and annual reports of the industrial goods firms from 2012-2021. Panel
regression models were formulated to analyse the relationship between inflation and capital structure. The
result of the fixed effect model shows that 45 per cent variation on debt equity ratio of Nigeria quoted
industrial goods manufacturing firms can be explain by variation on macroeconomic factor. The
regression coefficient indicated that there is no statistically significant effect of inflation rates on debt
equity ratios of the listed companies in Nigeria; there is no statistical evidence that there is an effect of
consumer price index on the debt equity ratio, and also no statistical evidence that there is a significant
effect on the debt equity ratio from the nominal interest rate. However, debt equity ratio increases with
changes in nominal interest rate when industry performance improves. The study concludes that it is
advantageous for a company to reduce its debt portfolio and increase its equity holdings to improve its
financial condition and its long-term growth when the economy is doing well. However, company’s
management must recognize that there are risks when it decides to go through equity financing, and
therefore it requires them to take a disciplined approach to managing its balance sheet. The study
recommends that company with high debt levels should consider reducing its debt in order to reduce its
borrowing costs and improve its financial strength. Secondly, it is in the best interest of the firm to
increase its level of equity financing in order to take advantage of the higher returns that an adequately
funded balance sheet can offer.
Keywords: Capital structure, debt equity ratio, Fisher effect, nominal interest rate and real interest rate

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