CAPITAL STRUCTURE AND FINANCIAL PERFORMANCE: A STUDY ON COMMERCIAL BANKS IN NIGERIA
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CAPITAL STRUCTURE AND FINANCIAL PERFORMANCE: A STUDY ON COMMERCIAL BANKS IN NIGERIA
By
Baba Mohammed Badori, Yaya Manu and Babagana Kachalla
School of Business Studies
Federal Polytechnic Damaturu Yobe State
Tertiary Education Trust Fund (TET Fund) Sponsored Study
Abstract
This study was designed to examine the relationship between capital structure and financial performance of listed licensed commercial banks in Nigeria. Panel data was used to conduct the empirical study which was extracted from the annual reports of 11 selected commercial banks for the period from 2010 to 2022. Total debt to total assets ratio, long term debt to total assets ratio, and short-term debt to total assets ratio were used to measure the capital structure. Return on assets (ROA), return on equity (ROE) were employed as financial performance measures. Size of the banks and growth in banks deposit will be considered as control variables. Data collated were analyzed using correlation analysis, pooled OLS regression analysis, fixed effect panel analysis, random effect panel analysis, granger causality analysis, as well as post estimation test such as restricted f-test of heterogeneity and Hausman test. The results from the model, that is total debt to total assets ratio were significantly negatively related to ROA, however it is equally observed that growth in banks deposit was significantly and positively related to ROA. Size, short term debt to total assets ratio and long-term debt to total assets ratio has also observed. Random effect model was considered as the most suitable model to examine the relationship between capital structure and ROE.
Keywords: Debt, Growth in banks deposit, Bank size Return and assets Return on equity.
