CAPITAL STRUCTURE AND PERFORMANCE OF DEPOSIT MONEY BANK
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Abstract
This study examined the effect of capital structure on the financial performance of deposit
money banks with international authorization listed on the Nigerian Exchange Group (NGX).
The study covered seven banks over a six-year period (2018–2023), yielding a total of 42
bank-year observations. Secondary data were extracted from audited annual financial
statements, while financial performance was proxied by Return on Assets (ROA). The capital
structure variables included Total Debt Ratio (TDR), Equity Ratio (ER), Long-Term Debt
(LTD), and Short-Term Debt (STD). Data were analysed using descriptive statistics,
correlation analysis, diagnostic tests, and multiple regression techniques through SPSS 25.
The descriptive statistics revealed that Nigerian deposit money banks rely heavily on debt
financing, particularly short-term debt. Correlation results showed no significant linear
relationship between ROA and the capital structure variables, although strong internal
correlations existed among TDR, ER, and STD. Diagnostic tests confirmed the absence of
multicollinearity, heteroskedasticity, autocorrelation, and non-normality. Due to perfect
multicollinearity between TDR and ER, both variables were excluded from the regression
model, leaving LTD and STD as the final predictors.
The regression results showed that Long-Term Debt (LTD) had a positive but statistically
insignificant effect on financial performance, while Short-Term Debt (STD) exerted a
negative and insignificant effect. The model’s explanatory power was weak (R² = 0.070),
indicating that capital structure accounts for only 7% of variations in bank profitability.
Based on the 5% significance threshold, all hypotheses were accepted, showing that none of
the capital structure variables significantly predicted financial performance during the
period under review.
The study concludes that capital structure does not have a significant effect on the financial
performance of internationally active Nigerian banks, suggesting that profitability in the
banking sector is driven more by operational efficiency, asset quality, regulatory compliance,
and macroeconomic factors than by leverage decisions. The study recommends that bank
managers adopt balanced financing strategies while regulators strengthen policies that
promote sustainable liquidity and risk management.
money banks with international authorization listed on the Nigerian Exchange Group (NGX).
The study covered seven banks over a six-year period (2018–2023), yielding a total of 42
bank-year observations. Secondary data were extracted from audited annual financial
statements, while financial performance was proxied by Return on Assets (ROA). The capital
structure variables included Total Debt Ratio (TDR), Equity Ratio (ER), Long-Term Debt
(LTD), and Short-Term Debt (STD). Data were analysed using descriptive statistics,
correlation analysis, diagnostic tests, and multiple regression techniques through SPSS 25.
The descriptive statistics revealed that Nigerian deposit money banks rely heavily on debt
financing, particularly short-term debt. Correlation results showed no significant linear
relationship between ROA and the capital structure variables, although strong internal
correlations existed among TDR, ER, and STD. Diagnostic tests confirmed the absence of
multicollinearity, heteroskedasticity, autocorrelation, and non-normality. Due to perfect
multicollinearity between TDR and ER, both variables were excluded from the regression
model, leaving LTD and STD as the final predictors.
The regression results showed that Long-Term Debt (LTD) had a positive but statistically
insignificant effect on financial performance, while Short-Term Debt (STD) exerted a
negative and insignificant effect. The model’s explanatory power was weak (R² = 0.070),
indicating that capital structure accounts for only 7% of variations in bank profitability.
Based on the 5% significance threshold, all hypotheses were accepted, showing that none of
the capital structure variables significantly predicted financial performance during the
period under review.
The study concludes that capital structure does not have a significant effect on the financial
performance of internationally active Nigerian banks, suggesting that profitability in the
banking sector is driven more by operational efficiency, asset quality, regulatory compliance,
and macroeconomic factors than by leverage decisions. The study recommends that bank
managers adopt balanced financing strategies while regulators strengthen policies that
promote sustainable liquidity and risk management.
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