Research Journal of Finance and Accounting www.iiste.org ISSN 2222-1697 (Paper) ISSN 2222-2847 (Online) Vol.5, No.15, 2014 82 The Impacts of Ownership Structure on Capital Structure and Firm’s Performance in Nigeria Dr Ben Ukaegbu 1 Dr Isaiah Oino 2 Felix Babatunde Dada 3* 1. Department of Finance and Accounting , London Metropolitan University, London 2. Greenwich School of Management (GSM) , Greenwich , London 3. University of Wales, GSM PhD Programme, London * E-mail of corresponding author: felixdada66@gmail.com Abstract This research is aimed at determining the relationship between corporate governance and capital structure while the impact of this relationship on value of the firm using the panel data of selected Nigerian large non financial firms was also investigated. A contrasting relationship was observed between capital structure and the firm’s performance while Nigerian firm’s capital structure was dominated by short term leverage. Leverage was negatively related to return on assets, number of board meetings and the board size while it was positively related to board composition. It was also observed that firm’s performance was positively related to leverage, number of board meetings and board size while it was negatively related to board composition. Key words: Capital structure, Value of the firm, Leverage, Corporate governance. 1.0 Introduction This research was aimed at investigating the relationship between capital structure and the ownership structure of large industrial firms in Nigeria with special interest on the effect of this relationship on the firm’s performance for the period between 2008 and 2012. The pecking order theory assumed that the manager tend to protect the investor with the use of debt that could lead to increase in the firm’s value. On this premise, there is therefore a need to investigate the impact of corporate governance on the performance of the firm. The concept of Capital structure explained how the firm’s activities are financed using the combinations of debt and equity to optimise the value of the firm. The controversy relating to the concept of capital structure and the value of the firm was triggered by the paper presented by Modigliani and Miller (1958) that was entitled “the cost of capital, corporate finance and the theory of investment” however they concluded that the value of the firm is irrelevant to the determination of the value of the firm, though this conclusion was based on an unrealistic assumption of perfect financial market conditions. The academic discourse and controversy generated from the work of Modigliani and Miller (1958,1963) lead to the developments of the main theories of capital structure, prominent among these theories were , Trade- off theory of Kraus and Litzenberger (1973) , Pecking order theory of Myers and Majluf (1984) , Agency theory of Jenson and Meckling (1976) and the Market timing theory of graham and Harvey (2001). The performance of the firm could determine the investor’s interest in the firm, and corporate governance also could play a moderating role on the Managers and their activities. As a result of the importance of corporate governance, it can play a role in the protection of the and interest of the stakeholders and the best that of the firm. Rocca (2007) observed that capital structure could motivate corporate governance efficiency while the firm’s ability to create value is also protected, she concluded that corporate governance has a mediation role between the capital structure and the value of the firm. There has been abundance of studies on capital structure in the developed economies with little done in developing countries generally and in particular Africa. The few research work done in this area in Nigeria was concentrated on the static capital structure of the trade-off theory, therefore there is need to adopt a more robust and complex dynamic capital structure research that will help the investors and other stake holders to appreciate the impact of corporate governance on the performance of the firm. The major research on capital structure in Nigeria was done by Salawu (2007) using a panel data of 50 non- financial companies, though the methodology was a positivist approach but the attention was on the static trade- off theory , while other studies by Salawu and Agboola (2008), Akinyemi and Olagunju (2013) also examined how the capital structure determinants was explained by trade –off theory . Equally, Ajeigbe et al (2013) also tested the trade off theory of manufacturing firms in Nigeria. In view of the focus of the previous studies , we observed that the important relationship between capital structure and ownership structure , on one hand and the effect of this relation on the performance of the firm on the other hands, have not been given particular attention, hence the necessity for the current study..