Capital structure and the Performance of Deposit Money Banks in Nigeria: Evidence from Panel Data Analysis

Abstract

This study investigated the impact of capital structure on the performance of deposit money banks in Nigeria using secondary data from statistical bulletin of the Central Bank of Nigeria for the period 2016–2021. To evaluate the stationarity of the data, the study employed econometric techniques involving the assessment of the unit root features of the data utilizing the common unit and individual unit root procedures. A unit root test revealed that the data were stationary at first difference and at first-order of integration [I (1)]. Cointegrating equation of fully modified ordinary least square (FMOLS) analysis used to account for serial correlation effects and endogeneity in the regressors resulting from the presence of a cointegrating relationship. The research demonstrates a statistically significant positive correlation between equity (EQT) and return on asset (ROA). Long term debt (LTD) was also positively associated with return on asset, although this association was not statistically significant (p>0.05). The relationship between short-term debt (STD) and ROA is positive but not statistically significant (p>0.05). There is no statistically significant relationship between firm size (FMS) and return on asset (ROA) (p>0.05). It was determined that the degree of profitability of the company under consideration will depend on management skill in managing the firm's capital structure. It was suggested, among other things, that bank management find a useful way to employ this capital structure in its operations because, as the study's findings demonstrate, its beneficial impact on the bank's performance is negligible.