Green Financing Instruments and Their Influence on Capital Structure in Nigeria

This study investigates the influence of green financing instruments on the capital structure decisions of firms, addressing a critical gap in sustainable finance literature. Using panel data analysis, we examine how the adoption of green bonds, green loans, and sustainability-linked financing affects two key capital structure metrics: debt-to-equity ratio (DE) and debt-to-total assets ratio (DTA). The research controls for traditional capital structure determinants, including firm size (FS), firm profitability (FP), growth opportunities (GO), firm age (FA), and liquidity (LIQ). Employing fixed-effects regression models on a sample of firms across multiple industries over five years, the findings reveal that green financing instruments significantly influence capital structure composition, with green debt issuance associated with higher leverage ratios compared to conventional financing. The results demonstrate that firms utilizing green financing instruments exhibit distinct capital structure patterns, suggesting that sustainability considerations introduce new dimensions to traditional capital structure theories. This research contributes to the emerging literature on sustainable finance by providing empirical evidence on how environmental, social, and governance (ESG) factors reshape corporate financing decisions. The study offers practical implications for corporate financial managers, investors, and policymakers seeking to understand the financial architecture of the green economy transition.