Nigerian Journal of Management Sciences Vol. 24, Issue 2a August 2023 Pg. 319 MACROECONOMIC FACTORS AND FINANCING DECISIONS OF QUOTED FIRMS IN NIGERIA IWEDI, Marshal Department of Banking and Finance Faculty of Management Rivers State University Port Harcourt marshal.iwedi@ust.edu.ng ABSTRACT 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 INTRODUCTION Theories about capital structure determinants been mostly developed have around firm-specific factors. Titman and Wessels (1988) and Harris and Raviv (1991) argue that a firm’s choice of financing is related to the firm’s asset structure, growth, size, operating income volatility, profitability, industry classification, non-debt tax shields, operating leverage, and uniqueness of firm’s business line. Another firm-specific characteristic that is found to be related to firm’s capital structure choice is business risk. There is a disagreement regarding the sign of the effect of this variable on optimal debt level, which may be due to different measures of business risk. Castanias (1983) uses tax shelter bankruptcy cost to measure business risk and finds that ex-ante default costs are large enough to induce firms to hold optimal mix of debt and equity. Meaning, there is roughly positive relationship between bankruptcy costs and optimal debt level, which contradicts static tradeoff theory. Carleton and Silberman (1977) use variance of return on assets (ROA) as proxy for business risk and find negative effect on debt levels. Conversely, Bradley et al. (1984) find that operating income volatility lowers the use of debt as it increases uncertainty in tax shields. Long and Malitz (1985) use firms’