CAPITAL STRUCTURE AND PERFORMANCE OF DEPOSIT MONEY BANKS IN NIGERIA

Abstract

This study examined the impact of capital structure on the performance of deposit money banks in Nigeria from 1998 to 2024. Specifically, the study investigated the effect of debt ratio, equity ratio, and debt-to-equity ratio on the return on assets of deposit money banks in Nigeria. The study adopted an ex-post facto research design and utilized secondary data obtained from the Central Bank of Nigeria Statistical Bulletin and the World Bank/IMF Global Financial Development Database. The population of the study comprised all deposit money banks listed on the Nigerian Exchange Group within the study period. Descriptive statistics, Augmented Dickey-Fuller (ADF) unit root test, Auto Regressive Distributed Lag (ARDL) model, and Breusch-Godfrey Serial Correlation LM Test were employed for data analysis. Return on assets (ROA) was used as the proxy for bank performance, while debt ratio (DR), equity ratio (ER), and debt-to-equity ratio (DER) served as proxies for capital structure. The findings revealed that debt ratio has a positive but insignificant effect on the performance of deposit money banks in Nigeria. Similarly, equity ratio was found to have a positive but insignificant effect on return on assets. However, debt-to-equity ratio exhibited a negative and statistically significant effect on banks performance, implying that excessive dependence on debt financing reduces profitability and increases financial risk. The study concluded that while capital structure significantly influences.

Keywords: 

Capital Structure, Debt Ratio, Equity Ratio, Debt-to-Equity Ratio, Return on Assets, Deposit Money Banks, Nigeria.