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Capital Structure and Financial Performance of Deposit Money Banks in Nigeria
Corresponding Author(s) : Okankwu Moses Welime
American Journal of Economics and Business Management,
Vol. 7 No. 10 (2024): October
Abstract
This research examined the correlation between capital structure and financial performance of Nigerian deposit money institutions. The performance criteria used were return on equity, return on assets, and the debt-to-equity ratio. Two well-defined questions and hypotheses guided the investigation. The study's methodology was based on a quasi-experimental setup. From 2012 to December 31, 2022, fourteen (14) deposit money institutions were part of the study population on the Nigerian Exchange Group (NGX).A large portion of the research was based on agency theory. Fact books, yearly reports of publicly traded deposit banks in Nigeria, and publications of the Nigerian Exchange Group (NGX) were the sources of secondary data utilized in the study. Mean, median, and standard deviation were some of the descriptive statistics used to examine the data. The impact of predictor variables on criteria measurements was examined by multiple regression analysis, and the association between independent and dependent variables was assessed using the product moment coefficient of correlation (PPMC). The analyses were conducted using version 23 of the Statistical Package for the Social Sciences. The analysis identified a significant negative association between debt to return on equity (ROE) and return on assets (ROA) among Nigerian publicly listed deposit money institutions. The study's results indicated a significant negative correlation between debt capital structure and both ROE and ROA. The data revealed a robust positive correlation between Equity (E) and both Return on Equity (ROE) and Return on Assets (ROA) concerning the financial performance of DMOs. Equity capital structure improves deposit-taking banks' financial performance, according to the study. It is recommended that DMOs refrain from using debt financing due to the negative impact it has on their financial performance measured by ROE and ROA, as shown in the research. Research indicates that Destination Marketing Organizations (DMOs) aiming to optimize returns via capital structure should choose equity financing over debt financing to enhance financial performance. The research recommended that the government must provide a conducive environment that fosters an equitable capital structure for the development of banks and other financial institutions
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References
Abata, M. A., Migiro, S. O., Akande, J. O., & Layton, R. (2017). Does capital structure impact on the performance of South African listed firms? Economica , 13 (6), 334-350.
Abbadi, S. M., and Abu-Rub, N., (2012). The effect of capital structure on the performance of Palestinian financial institutions. British Journal of Economics, Finance and Management Sciences, 3(2), 92-101.
Abdullah, H., & Tursoy, T. (2021). Capital structure and firm performance: evidence of Germany under IFRS adoption. Review of Managerial Science, 15(2), 379-398.
Adeniyi, A. J., Marsidi, A., & Babatunji, A. S. (2020). Capital Structure and Commercial Banks Performance in Nigeria. International Journal of Academic Research in Accounting, Finance and Management Sciences, 10(1), 239-249.
Adesina, J. B., Nwidobie, B. M., & Adesina, O. O. (2015). Capital structure and financial performance in Nigeria. International journal of business and social research, 5(2), 21-31.
Adeyele, J. S., & Maiturare, M. N. (2012). Repositioning the Nigerian insurance industry for sustainable development: Risk management perspective. European Journal of Business and Management, 4(5), 23-30.
Adeyemi SB, Oboh CS (2011) Perceived Relationship between Corporate Capital Structure and Firm Value in Nigeria. International Journal of Business and Social Science (2): 19.
Agwingi, M. (2018). Capital Structure and Dividend Payout Ratio of Non-financial Companies Listed at the Nairobi Securities Exchange (Doctoral dissertation, University of Nairobi).
Ahmed, H. U., Ningi, S. I., & Dalhat, B. S. (2018). Capital Structure and performance of deposit money banks in Nigeria. Nigeria Deposit Insurance Corporation Quarterly Research, 33(3), 49-76.
Akande, A. A. (2019). Nexus Of Liquidity Management And Corporate Business Failures In Non–Financial Sectors’ A Case Of Nigeria.
Akani, H. W., & Chukwuemeka, A. (2021). Capital Structure And Financial Performance Of Small And Medium Enterprises In Nigeria. European Journal of Accounting, Finance and Investment, 8(8), 1-22.
Alhassan, I. (2021). Capital Structure and Financial Performance of Consumer Goods Companies in Nigeria. IAR Journal of Tourism and Business Management, 1(1).
Ebenezer Bugri Anarfo (2015) Capital Structure And Bank Performance – Evidence From Subsahara Africa. European Journal of Accounting Auditing and Finance Research Vol.3,No.3, 1-20.
Onaolapo, A. A., & Kajola, S. O. (2010). Capital structure and firm performance: evidence from Nigeria. European Journal of Economics, Finance and Administrative Sciences, 25(1), 70-82.
Onaolapo, A. A., Kajola, S. O., & Nwidobie, M. B. (2015). Determinants of capital structure: A study of Nigerian quoted companies. methodology, 7(23).
Rahman, M. A. I., & Subagio, S. (2021). The Influence Of Corporate Governance, Capital Structure, and Company Size on The Company's Financial Performance. Jurnal Manajemen Keuangan Publik, 5(2), 98-108.
Rahman, M. A., Sarker, M. S. I., & Uddin, M. J. (2019). The impact of capital structure on the profitability of publicly traded manufacturing firms in Bangladesh. Applied Economics and Finance, 6(2), 1-5.
Ramadan, Z. S., & Ramadan, I. Z. (2015). Capital structure and firm’s performance of Jordanian manufacturing sector. International Journal of Economics and Finance, 7(6), 279-284.
Ramli, N. A., Nartea, G., Rasedee, A. F. N., & Baharum, A. (2022). The Mediation Effects of Capital Structure: Evidence from Malaysian and Indonesian Economic Sectors. Mathematical Statistician and EngineeringApplications, 71(2), 234-256.
Saeedi A and Mahmoodi I (2011). Capital Structure and Firm Performance: Evidence from Iranian Companies. International Research Journal and Economics (70): 20-26.
Sharon, Z., & Celani, J. N. (2019). Capital structure of small, medium and micro enterprises: major factors for a developing economy. Problems and Perspectives in Management, 17 (2), 124-133.
Shen, B. (2017). An empirical study on the relationship between capital structure and corporate performance. European Journal of Accounting, Auditing and Finance Research5 (11),contemporary research in business, 4(10), 393-403.
Shubita, M. F., & Alsawalhah, J. M. (2012). The relationship between capital structure and profitability. International Journal of Business and Social Science, 3(16), 104-112.
Uremadu, S. O. & Onyekachi, O. (2019).The Impact of Capital Structure on Corporate Performance in Nigeria: A Quantitative Study of Consumer Goods Sector. Agricultural research and technology open access 19, pp. 2471-6774.
Xu, J., Sun, Z., & Shang, Y. (2021). Capital structure and financial performance in China’s agricultural sector: a panel data analysis. Custos E Agronegocio On Line, 17(2), 445-463