International Journal of Economics and Financial Issues

Economic Growth Effects of Fiscal Policy in South Africa: Empirical Evidence from Personal Income Tax

Lavisa Tala — Tue, 14 May 2024 00:00:00 +0000

This study determined economic growth effects of fiscal policy in South Africa. Particular attention was paid to effects of personal income tax on economic growth for the period 1993Q3 -2022Q4. The influence of personal income tax on economic growth was analysed using non-linear autoregressive distributed lag (NARDL) bounds test for cointegration. Estimated results indicated rise in personal income tax is growth-friendly in the short-run. While, in the long –run growth is affected by both positive and negative shocks in personal income tax. Positive personal income tax changes are detrimental to economic growth in the long run. Increasing personal income tax will compromise the country’s economic growth strategy. Furthermore, positive changes in personal income tax affect economic growth more than negative shocks as confirmed by dynamic multiplier graph. Dynamic multiplier graph further reveal existence of asymmetry. Additionally, Wald test value of -6.2775 validated asymmetric effect of personal income tax on economic growth. It is therefore, recommended that policy makers should focus on considering other sources of tax revenue. The current structure of the tax system is skewed towards personal income tax. Policy makers should keep the current ratio of personal income tax and widen tax base to realise inclusive economic growth.

Monitoring Intensity, Institutional Shareholders, and Earnings Manipulation Engendered Accounting Scandal: The South African Perspective

Oloyede Obagbuwa, Farai Kwenda, Kiran Baldavoo — Tue, 14 May 2024 00:00:00 +0000

This study determines the extent to which loosening institutional shareholder monitoring intensity induces earnings management, thereby leading to accounting scandals. When there is intense monitoring of the corporate executives, their opportunistic tendencies are prevented, and corporate decisions align with the value-creation target. The study postulates that institutional shareholders' relaxed monitoring role positively and significantly impacts earnings management. The more robust Two-Step System GMM was used to analyse the collected data of companies listed on the Johannesburg Stock Exchange (JSE) for 15 years from 2004 to 2019. The finding revealed that slack institutional shareholders' control affects earnings management positively.

Ownership Structures, Executive Compensation and Tax Aggressiveness in Indonesia Mining and Plantation Companies: The Moderating Effect of Audit Quality

Eriana Kartadjumena, Nuryaman Nuryaman — Tue, 14 May 2024 00:00:00 +0000

This study examines how the ownership structure, executive compensation, and audit quality interact to influence tax aggressiveness in Indonesian mining and plantation companies. The proxy for ownership structures is institutional and family ownership, and the proxy for executive compensation is the total salary of directors per year. Meanwhile, the proxy for tax aggressiveness uses the cash effective tax rate, and audit quality is proxied by the Big Four audit firms. Research data were taken from the 233 annual reports of 47 mining and plantation companies that listed on the Indonesia Stock Exchange during the period 2018–2022. The data were analyzed by a panel data regression technique. The results show that both institutional and family ownership have a significant positive effect on tax aggressiveness. While executive compensation has not influenced tax aggressiveness. Moreover, audit quality has a positive moderating effect on the negative relationship between family ownership and the cash effective tax rate. High-quality auditors can restrain family shareholders' ability to take aggressive tax positions. However, audit quality could not interact to influence the relationship between institutional ownership or executive compensation and tax aggressiveness.

The Impact of Political Involvement on Firms’ Financial Performance

Ruba Khalid Shira — Tue, 14 May 2024 00:00:00 +0000

Political involvement helps businesses to obtain key government resources and support. Political involvement assists businesses to take actions that reduce uncertainty, provide shield and environmental dependence from the environmental threats that can directly impact their performance. This study aims to investigate the impact of political involvement on banks’ sustainable performance in selected South Asian economies (Pakistan, Bangladesh, India, and Sri Lanka). The data is collected from DataStream for the period of 2013-2022. The Generalized Method of Moments (GMM) is employed to analyze the results. The study finds that political involvement negatively affects the firm’s sustainable performance. This study is helpful for management of the organizations and shareholders to increase firm performance by reducing political involvement.

Examining Mandatory Audit Firm Rotation and Audit Quality in South Africa: Practitioner and Academic Perspectives

Munkaila Aminu, Bomi Cyril Nomlala, Kiran Baldavoo — Tue, 14 May 2024 00:00:00 +0000

In this study, we examined the perceptions of practitioners and academics perspectives about the impact of mandatory audit firm rotation (MAFR) on audit quality (AQ) in South Africa within the province of KwaZulu-Natal. The paper considered the position of the European Union (EU) and the South African Independent Regulatory Body for Auditors (IRBA) regarding its policy shift on MAFR. The study examined the logical connection between MAFR and AQ. This was through the opinion of 101 practitioners and academics gathered from Tier 2 audit firms and two public institutions about the readiness of the rule in South Africa’s jurisdiction. We utilised a quantitative research method through descriptive statistics to understand the influence of the policy on AQ. Opinions of audit experts through closed-ended questionnaires were a distinct feature of our research, while analysis of the descriptive study was on the usage of feedback from respondents. Results from the data analysis presented provided a general overview of respondents’ opinions on the rule. Affirming our research aim, data from the majority of respondents agreed that the policy would strengthen AQ but maintained that the results of the additional imposition of cost could be worse. While this paper contributes to the existing literature on MAFR and AQ, it recommends that further research should concentrate on pre and post-implementation of the policy employing views from registered auditors and academics from different provinces in South Africa to measure the policy effects of the rule on AQ.

Socio-Economic Determinants of the Financial Inclusion of Women and Men in Burkina Faso: An Analysis using the Sequential Logit Model

Dimaviya Eugène Compaore, Boukaré Maiga — Tue, 14 May 2024 00:00:00 +0000

This article identifies and analyses the socio-economic determinants of financial inclusion. Using data from the FinScope survey (2016) in Burkina Faso, a sequential logit model was used on a sample of 5012 individuals. The results indicate that level of education, age, access to television, urban location, marital status and time to access a bank branch are the main determinants of the first phase of the financial inclusion process. In the second phase of the process, level of education, age, access to television, urban location, marital status and time spent accessing a bank branch emerged as determinants of access to savings. In the third and final phase of the process, household size, access time to a bank branch and confidence in financial institutions were the only determinants of access to credit. The results also show a difference between the factors influencing financial inclusion for men and women.

Foreign Direct Investment and Domestic Private Investment in WAEMU Countries: Crowding-in or Crowding-out?

Hahandou Mano — Tue, 14 May 2024 00:00:00 +0000

Foreign direct investment (FDI) is a particularly attractive prospect for WAEMU countries, which are constantly integrating it into their development policies. However, studies on the relationship between FDI and private domestic investment (PDI) come to contradictory conclusions. This article focused on the effect of FDI on private domestic investment over the period 1996 to 2018. The results validated the presence of cross-country dependence. The article uses Common Correlated Effect-Mean Group (CCE-MG) as the analytical technique for this purpose. The results are consistent with the “crowding-out” hypothesis of FDI on PDI.

Trade Openness, Financial Development and Economic Growth in Lesotho: BVAR and Time-varying VAR Analysis

Kazeem Abimbola Sanusi, Zandri Dickason-Koekemoer — Tue, 14 May 2024 00:00:00 +0000

This research paper explores the dynamic relationship between trade openness, financial development, and economic growth in Lesotho. The study utilizes quarterly time series data spanning from 1970 to 2021, obtained from the Central Bank of Lesotho. This paper makes a significant contribution to the methodological discourse by utilizing a time-varying VAR approach, in addition to the Bayesian VAR estimation approach. The empirical results indicate that there is no cointegration relationship between economic growth, financial development, and trade openness. However, the evidence shows a unidirectional causality from economic growth to trade openness in Lesotho. The Bayesian VAR and time-varying VAR estimations reveal that the variables dynamically react and adjust to shocks among the variables. The study recommends that to stimulate the opening up of the economy to the world, growth-enhancing policies such as the provision of world-class infrastructure facilities, improved healthcare facilities, and a conducive macroeconomic environment should be implemented, considering the insufficient international demand in Lesotho.

The Impact of Non-Tariff Measures on the Exporting of Agricultural Products of Cambodia

Siphat Lim — Tue, 14 May 2024 00:00:00 +0000

The production and exporting of agricultural products were considered one of the most important roles of the Cambodian people. In the free trade world, tariff measures were not determined to be the main obstacle to moving products from one country to worldwide, but non-tariff measures, NTMs, were defined to be the main problem nowadays. An empirical investigation using the gravity model with four classes of NTMs: SPS, TBT, PSI, and NTB was carried out to assess the impact of Cambodia’s exported agricultural products abroad. In order to generate robust standard errors for hypothesis testing, the Ordinary Least Square (OLS) estimation method was combined with the bootstrapping technique. The results of this research supported the gravity model hypothesis, however, SPS and PSI were negatively affecting Cambodia’s exporting at significant levels of 10 percent and 1 percent, respectively, while the TBT measure had a positive influence on trade at a level of significant of 1 percent. In contrast, the NTB class had no significant impact on exports.

Islamic Stock Indices and COVID-19: Evidence from Indonesia

Selamet Herman Cipto, Endri Endri, Yono Haryono, Dhanang Hartanto — Tue, 14 May 2024 00:00:00 +0000

The COVID-19 pandemic has paralyzed the economy, affected human health, and claimed human lives in the world. This deadly virus is rapidly affecting every aspect of life in all countries. Almost every area of life, from economics to politics, society to culture, has been affected by the COVID-19 pandemic; of course, this impact cannot be separated from the Sharia stocks sub-sector in Indonesia. This study aims to analyze and test the effects of COVID-19 on the response of Islamic stocks. Moreover, to see the difference between the Jakarta Islamic Index (JII) sharia stocks and the Composite Stock Price Index (IHSG) in observations before COVID-19 and after COVID-19. This event study research aims to see the differences between the Jakarta Islamic Index (JII) sharia stocks and the Jakarta Composite Index (IHSG) in observations before COVID-19 and observations after COVID-19. The data used in this study is secondary data already available and obtained from the Indonesia Stock Exchange (IDX). The results of this study show a significant influence on stock prices before and after the announcement of COVID-19 in Indonesia on the Jakarta Islamic Index (JII). There is no significant effect on stock returns before and after the announcement of COVID-19 in Indonesia on the Jakarta Islamic Index (JII). There is no significant effect on abnormal returns before and after the announcement of COVID-19 in Indonesia on the Jakarta Islamic Index (JII). There was a significant influence on stock trading volume before and after the announcement of COVID-19 in Indonesia on the Jakarta Islamic Index (JII).

Exploring Shariah Governance Practices in Islamic Co-Operatives in Malaysia

Tue, 14 May 2024 00:00:00 +0000

This study aims to explore the current Shariah governance practices, Shariah function practices and Shariah governance issues and challenges in Islamic co-operatives in Malaysia. For this, a physical town hall session with 64 representatives from 39 Islamic co-operatives was conducted for data collection. The empirical finding indicates that the Shariah Advisory Council (SAC) of the Malaysia Co-operative Societies Commission (SKM) was perceived to play similar roles like the Shariah Advisory Council (SAC) of the Bank Negara Malaysia (BNM) and the Securities Commission of Malaysia (SC). Besides, management of Islamic co-operatives in Malaysia also see the need to create a Shariah committee at the co-operative level as part of good Shariah governance practices. Moreover, although more than half of the respondents admit that their respective co-operatives are already implementing Shariah governance practices, the implementation of Shariah function such as Shariah review and Shariah audit is still at the initial stage, with more than half of Islamic co-operatives yet to implement this Shariah function. In addition, several issues and challenges have been identified in the implementation of Shariah governance in Islamic co-operatives. This study is expected to contribute to enhancing Shariah governance practices in Islamic co-operatives to ensure better Shariah compliance.

An Investigation of the Impact of Financial Literacy on Households’ Financial Well-Being: An Emerging Market Study

Tue, 14 May 2024 00:00:00 +0000

In view of the amplified inflation rates and economic stagnation in a number of countries in recent times, financial vulnerability became a key concern in both developed and developing economies. The current study advocates financial literacy is a key to lessen financial vulnerability and promote financial well-being. We propose and test a thorough model investigating the key mechanisms contributing to financial literacy, and how it contributes to individuals’ financial well-being in the context of an emerging market (i.e., Morocco). The mediating effects of indebtedness and financial behavior are also scrutinized. Based on survey data collected from a sample of 848 respondents from Morocco, the conceptual model was assessed using structural equation modeling. Our findings suggest financial literacy as a key to lessen financial vulnerability and promote financial well-being. Policy makers in Morocco and developing countries, where financial vulnerability is more prevalent, may use the current study findings to promote effective education programs to improve citizens’ financial literacy and well-being. Our findings also convey no impact of education on financial literacy, suggesting that education programs in Morocco are still not yet aware of the importance of financial literacy as a key shaping students’ career and financial well-being. Education policy makers are therefore urged to incorporate financial education and literacy as a key component in all education programs. Financial education programs should also take into consideration demographic disparities and therefore design financial education programs based on the target group to better delineate financial literacy in education programs.

Modeling the Socio-Economic Factors Affecting Islamic Insurance Adoption: A Structural Equation Modeling Analysis

Tue, 14 May 2024 00:00:00 +0000

While Islamic banking products have exhibited substantial growth in a number of Muslim countries, their market share remains restricted in others (i.e., Morocco). The current research aims to elucidate the key drivers of Islamic insurance (Takaful) adoption among Moroccan banking consumers. To achieve this goal, we propose and assess an integrated conceptual framework combining the Theory of Planned Behavior (TPB), the Diffusion of Innovation theory (DOI), and other constructs borrowed from prior literature (i.e., Religiosity). Through an online self-administered questionnaire, data was collected from 204 Moroccan respondents and analyzed using Partial Least Squares Structural Equation Modeling. Our findings reveal that while comparative advantage, religiosity and attitude positively influence respondents’ behavioral intention toward Takaful adoption, perceived complexity had a negative impact on takaful adoption. This research is among the first to evaluate the antecedents of behavioral intention towards Islamic insurance (Takaful) following its recent introduction to the Moroccan Market. Ultimately, it presents an important contribution to the limited literature on banking consumers’ perceptions of Islamic banking products in a market where Islamic banks are still at an infancy stage.

Income Contribution of Backyard Gardening and its Association with Household Food Security: A Case Study in an Urban Setting

Thabang R. Aphane, Chiedza L. Muchopa — Tue, 14 May 2024 00:00:00 +0000

Households located in urban township settings experience food insecurity which can be alleviated through backyard gardening. This study is to determine the extent of the contribution of backyard gardening to food security. Based on the Logistic Regression Model, household size, farming experience, employment status of the household head and harvesting frequency were found to be significant in affecting the food security status of the household. The study found that backyard gardening contributes (contribution index of 67.25%) towards household food security. Household specific factors should therefore be considered in policy targeted intervention strategies aimed at alleviating food insecurity.

The Effects of Exchange Rate Fluctuation on Bangladeshi Exports: An ARDL Bound Testing Technique

Md. Monir Khan, Asif Ahmed — Tue, 14 May 2024 00:00:00 +0000

The objective of this paper is to investigate the influence of fluctuations in exchange rates on the export performance of Bangladesh. The analysis is based on annual data obtained from reputable sources such as the World Development Indicators (WDI) for the period spanning from 1981 to 2022. Autoregressive Distributive Lag (ARDL) bound testing approach is used to estimate the long-term as well as short-term relationship between the independent variables and dependent variable. The exports serve as the dependent variable, while the real exchange rate, gross capital formation (as a proxy for investment), inflation, and real interest rate are considered as the independent factors. The study's findings suggest that Bangladesh's exports are negatively impacted by exchange rates over the long and short terms. However, it is noteworthy that the magnitude of this negative effect is much greater in the long run as compared to the short run. Other controlled variables such as gross capital formation and real interest rate also have negative impact on exports in Bangladesh at lag one. Finally, this study suggests the implementation of policies that will foster better exchange rate stability as well as the pursuit of a stable and sustainable exchange rate policy.

Unveiling Interconnectedness and Volatility Transmission: A Novel GARCH Analysis of Leading Global Cryptocurrencies

Silky Vigg Kushwah, Shab Hundal, Payal Goel — Tue, 14 May 2024 00:00:00 +0000

The cryptocurrency industry has grown erratically and at an alarming pace during its brief life. It has received massive attention from the practitioners, academicians, and especially media since Bitcoin was introduced in 2009. The current paper investigates the volatility dynamics of five major cryptocurrencies, namely Bitcoin, Ethereum, Litecoin, DASH and Ripple’s XRP. It discloses the impact of volatility in the prices of other cryptocurrencies on the Bitcoin’s price volatility. The time series of all the cryptocurrencies prices for the period 2016 to 2022 are considered and preliminary analysis highlights that there exists conditional volatility in all the cryptocurrencies which allows us to use the family of GARCH model. The research findings reveal the significant effect of asymmetric past shocks on the current volatility of Bitcoins. Further, the volatility of remaining virtual currencies are also significantly affecting the Bitcoin’s current volatility. Therefore, the present study unveils the absence of diversification benefits in the market of virtual assets as significant effect of price volatility of other digital coins has been found on the price volatility of Bitcoins. The practical implication of our study is that the findings offer new information for investors and portfolio managers, who are attracted to invest in or hedging strategies in cryptocurrencies.

Enhancing Housing Finance for Socio-Economic Stability in Uzbekistan

Tue, 14 May 2024 00:00:00 +0000

This study is devoted to the analysis of the current state and prospects for improving housing finance in Uzbekistan in the period from 2018 to 2023. The purpose of the work is to identify key factors affecting the socio-economic stability of the country through the prism of housing sector development, and to develop practical recommendations for optimizing housing finance mechanisms. An analysis of the dynamics of key indicators of the housing sector in Uzbekistan for 2018-2023 revealed a positive trend in the growth of housing construction by 28.6% (from 12.3 million square meters in 2018 to 15.8 million square meters in 2023), an increase in the share of mortgage lending in the structure of housing finance from 23.4% to 41.7%, as well as an increase in the level of housing provision for the population increased from 15.9 sq.m. per person in 2018 to 17.4 sq.m. in 2023. At the same time, there are still imbalances in the territorial distribution of housing construction volumes and the availability of mortgage loans for various segments of the population. The econometric analysis showed that an increase in housing construction by 1% leads to an increase in GDP by 0.28%, and an increase in the share of mortgage lending by 1 percentage point contributes to a decrease in the unemployment rate by 0.14 percentage points.

Demand for Fish in Urban Malawi: An Almost Ideal Estimation

Fredrick Mangwaya Banda, Abdi-Khalil Edriss, Wilson Wesley Jere, Horace Phiri — Tue, 14 May 2024 00:00:00 +0000

There is a general consensus, among marketers, that dealing with competition requires their engagement with customers so as to build strong customer relationships. The purpose of this study is to find factors that influence the demand for various fish species caught and consumed in Malawi. Previous studies treated fish as a homogenous commodity even though there are different species of fish. This study is, therefore, the first to provide a disaggregated analysis of the demand for fish in Malawi employing primary data collected from the households in Blantyre city using a multistage stratified random sampling procedure. Results indicate that all the fish species used in the study, except matemba (Barbus paludinosus), are complementary and normal goods. Policy implications arising from this study are two-fold namely; policymakers need to make sure that people have more income to buy more fish and make sure that the price of fish does not just rise anyhow.

Taxation and Consumers’ Spending Patterns in Nigeria: An Autoregressive Distributed Lag and Error Correction Model Approach

Tue, 14 May 2024 00:00:00 +0000

This study evaluates the effects of personal income tax and consumption tax on the spending system of consumers in Nigeria. The autoregressive distributed lag (ARDL) model has been employed for the co-integration test. The research additionally employs the Error Correction Model (ECM) to assess the pace at which any divergence from the long run equilibrium can return to normal in the current period. The findings show that Value added tax has an insignificant impact on purchasing power of consumers in both the short and long intervals. However, personal income tax and exchange rate exert substantial positive effect on consumer spending power in the long run but not in the short run. At the 1% level, the ECT coefficient is shown to be significant and unfavourable. This demonstrates a pretty slow convergence rate, with the model pushing itself towards equilibrium by 37% each year. The consequence is that any disequilibrium caused by shocks from the previous year requires 37% adjustment speed to return to long-run equilibrium in the current year. There have been several studies on how consumption tax affects households’ welfare without considering the effects of income tax and ever fluctuating exchange rate alongside these whole scenarios. This study puts all of these issues into consideration and contributes meaningfully to the existing literature that personal income tax is an integral part of the factors that affect households’ spending capacity. The study recommends that proper tax policy to enhance consumers’ spending capacity.

The Implication of Political Risk and Specific Macroeconomic Variables on Total Revenue in Tourism Industry

Thomas Habanabakize, Lerato Mothibi — Tue, 14 May 2024 00:00:00 +0000

Political risk is one factor that influences tourism performance as a tourist is more sensitive to the hosting country’s political environment. In addition, to the effect of country risk on the tourism industry, the global economy has recently experienced severe shocks due to high inflation rates, political risk, and currency volatility. This paper aims to investigate the implications of political risk, inflation, and exchange rate volatilities on tourism revenue in South Africa. A sample of 144 monthly data was used to assess both long-run and short-run relationships amongst the study variables using the ARDL cointegration and error correction model approaches to achieve the study objective. Results indicated that political risk, inflation rate, and exchange rate volatility influence long-term revenue changes in the tourism industry. In contrast, real effective exchange rates and inflation significantly impact total revenue in the tourism sector. The findings also indicated that political risk has no short-term effect on tourism revenue. Based on these findings, the study recommends that the country's political stability increase, increasing the number of tourist arrivals and resulting in growing revenue for the tourism industry in S.A. Additionally, the South African reserve bank should revise its exchange-rate pegging, monetary targeting, and inflation targeting to reduce the effects of inflation on tourism revenue.

Effect of Corporate Environmental Performance on Banks’ Loan Pricing

Witness Siwela, Collins C Ngwakwe — Tue, 14 May 2024 00:00:00 +0000

Capital lenders of money such as banks are perceived to be environmentally sensitive in contemporary times. This sensitivity is evidenced by the advent of new concepts such as green financing in the context of environmental catastrophes which are exacerbated by the climate change crisis. Thus, financial institutions such as banks face a dilemma in deciding whether to prioritise sustainability financing or seek after profit maximisation. To this end, little is known if corporate environmental performance lures support of key stakeholders such as banks. The study renders empirical evidence on this phenomenon by investigating short run and long run dynamics between corporate environmental performance and banks’ loan pricing. Archival data were collected from the FTSE/JSE RII listed companies. A sample of 21 companies generated a short panel data set of six years per cross-section totalling 126 observations. The study adopted first differenced econometric models in statistical panel data analyses namely Panel Vector Error Correction Model (VECM), and subsequently Panel Least Squares (PLS), Wald Test, and Impulse Response Functions (IRF). Findings revealed a statistically significant positive impact, both in the short run and long run, between environmental performance predictors and banks’ loan pricing. While the study makes immense contribution to literature, it renders new assertions in understanding stakeholders’ current environmental practices and initiate a new agenda for future research.

Assessing the Impact of M&As’ Motives Influencing the M&A Decision Making Process in the UAE Banking Sector

Tue, 14 May 2024 00:00:00 +0000

A number of review studies have been conducted to provide valuable insights into the M&A decision-making process in the banking sector and factors that could have a positive and effective impact on it. This study systematically reviews and analyses the decision-making process for M&A and its related factors in 15 interviews with experts related to 10 M&A transaction in UAE banking sector from 2005 to 2021. The main findings contain that the most frequent factors affecting M&A decision-making are Regulation, Globalization, Technology and Economics. In addition, most of the M&A decision-making relevance is also affected by the internal factors of Synergy, Agency & Management Motives, Hubris Motives. The findings of this review study provide an overview of current studies and analyses of the M&A decision-making process in the banking sector and the factors that affect it.

Interactions between Equity REITs and S&P 500 Returns

Matiur Rahman — Tue, 14 May 2024 00:00:00 +0000

This paper seeks to reinvestigate the contemporaneous interactions using daily closing prices of US eREIT and S&P 500 indices to calculate their respective rates of return. Daily data are used from October 31, 2008 through October 31, 2023 with 3,856 observations. Data are obtained from (www.wsj.com and (https://finance.yahoo.com/). The time series data distributions of both variables are near-normal in term of their respective mean-to-median ratio with very low standard deviations. The Ordinary Least Squares (OLS) is applied to estimate regressions (1) and (2) for reliable and unbiased results, as it meets the statistical criteria for suitability. The regression results show evidence of weak interactions between them with bidirectional causal flows.

The Evaluation of Liquidity and Capital Structure of Manufacturing Firms in Nigeria

Elijah Adeiza Evinemi, Steve Emeka Emengini — Tue, 14 May 2024 00:00:00 +0000

Firms' choices regarding their capital structure influence their net cost or value. Firm characteristics such as firm size, liquidity, growth opportunities, asset tangibility, non-debt tax shield and cost of equity are specific traits of firms. This study investigates the effect of firm liquidity on capital structure of manufacturing firms in Nigeria. Annual data was obtained from reports of thirty-one (35) manufacturing firms covering the period 2007-2021. The effects of liquidity on capital structure were examined using the panel Fixed/Random effect methods. The summary statistics, correlation analysis, slope heterogeneity and cross-sectional dependence were conducted as pre-estimation procedures. The study employed debt-to-equity and debt-to-asset ratios to capture capital structure, while cash conversion cycle in days was used to measure liquidity. The findings show that liquidity has negative significant relationship in explaining the debt-to-asset of manufacturing firms and no significant effect in explaining the debt-to-equity of manufacturing firms in Nigeria. The study recommends that manufacturing firms embrace innovation as a way of increasing the efficiency of the total assets. Also, manufacturing firms should formulate main policies, which support the implementation of positive cash flow.