Capital Structure Heterogeneity and Firm Valuation: Evidence from Key Non-Financial Sector in Nigeria
Abstract
This study examines the heterogeneous effects of capital structure components retained earnings ratio (RER), equity ratio (EQR), and debt ratio (DR) on firm valuation, proxied by market value per share (MVPS), across three key non-financial sectors in Nigeria: services, oil and gas, and agriculture from 2016-2024. The research adopts an ex-post facto research design, utilising panel data of non-financial firms listed on the Nigerian Exchange Group. Using pooled OLS, fixed effects (FE), and random effects (RE) estimators on sectoral panel data, we employed the Hausman specification test to guide model selection. For the service sector, the RE model is preferred, revealing that RER exerts a strong positive influence on MVPS, whilst neither EQR nor DR demonstrate meaningful explanatory power. For the oil and gas sector, the FE model is appropriate; surprisingly, despite an impressive model fit, none of the individual ratios achieve statistical significance, suggesting valuation is driven by unobservable firm-specific traits rather than the measured financing mix. For the agricultural sector, the RE model shows that RER positively boosts firm value, whereas EQR exhibits a significant negative association. The evidence robustly confirms capital structure heterogeneity across Nigerian non-financial sectors. Based on these findings, we recommend that managers in services and agriculture prioritise internal financing via retained earnings though agricultural equity issuances warrant caution given their dilutive valuation effects while oil and gas managers should shift focus towards operational efficiencies rather than leverage adjustments. For investors and regulators, the central takeaway is to abandon uniform valuation metrics in favour of sector-sensitive benchmarks, while policymakers ought to enhance disclosure requirements for retained earnings utilisation and consider sector-specific capital adequacy guidelines to strengthen investor confidence and market efficiency.