Moderating Effect of Agency Costs on the Relationship Between Capital Structure and Value of Listed Manufacturing Firms in Nigeria

Abstract

Capital structure and firm value relationship is an important issue in the corporate finance, especially in developing markets such as that of Nigeria. This research examines the effect of capital structure choices, in this case, Long-Term Debt, Short-Term Debt, Common Stock, and Retained Earnings on the market value of the listed manufacturing companies in terms of Tobin Q. The paper also discusses how Audit Fees modify the association between capital structure choices and the market value of the listed manufacturing firms. The primary goal of the research is to evaluate the impact of these elements of capital structure on the value of a firm and establish whether it is moderated by Audit Fees. The paper presents an ex post facto research design, which will be carried out by examining the secondary data on 10 listed multinational companies in Nigeria between 2014 and 2023. The correlation analysis, descriptive statistics, and panel data regression are used to test the relationship between capital structure and Tobin Q and Audit Fees are used as the moderating variable. The findings demonstrate that Long-Term Debt, Common Stock, and Retained Earnings have a significant positive impact on firm value, with the greatest strength expressed by the Long-Term Debt. Moreover, the research concludes that the positive associations between capital structure choices and firm value are enhanced by greater Audit Fees, and demonstrate the significance of corporate governance and financial transparency. In view of these results, the study would advise companies to mix their capital structure through use of Long-Term Debt as the source of capital to make capital-intensive investments and appreciate the use of Common Stock as an indicator of financial stability. Other steps that firms should take include reinvesting Retained Earnings in long-term growth opportunity, focusing on quality auditing, and improving governance practices. Regulators are advised to put in place mechanisms of promoting sound financial management practices.