IIARD International Institute of Academic Research and Development

INTERNATIONAL JOURNAL OF ECONOMICS AND FINANCIAL MANAGEMENT (IJEFM )

E-ISSN 2545-5966
P-ISSN 2695-1932
VOL. 7 NO. 1 2022

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Debt Capital and Financial Performance of Commercial Banks in Nigeria

Orlu, Lucky, Amini, Maton-Awaji Clifford & Amadi, Celestine Rose

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Abstract

This study examined the effect of debt capital and financial performance of commercial banks in Nigeria. The objective is to determine the extent to which debt capital affect financial performance of quoted commercial banks. Data were sourced from financial statement of the quoted commercial banks from 2000-2020. Return on equity was modeled as the function of debt equity ratio, debt ratio, equity ratio, total liability ratio and long term debt ratio. Multiple regressions with econometrics view statistical package were used as data analysis techniques. Co-integration, Granger Causality Test and Augmented Unit Root Test were used to determine the long and the short run relationship that exist among the variables. The study found that 83.8% of the variation in Return on Equity is attributable to the variations in the debt capital. The estimated model also found that total liability ratio have a negative coefficient of 2.86, long term debt ratio have a negative coefficient of 5.37, equity ratio have a negative coefficient of 2.66 which debt equity ratio have a negative coefficient of 0.06 which implies that a unit increase on the variables will lead to decrease on return on equity of the commercial banks. However, equity the positive coefficient of 1.67 as parameter for equity ratio implies that a unit increase will lead to 16.7% increase on return on equity of the commercial banks. From the findings, the study found that debt capital has significant effect on the financial performance of the quoted commercial banks. It recommends that management of quoted commercial banks should work very hardtop optimize the capital structure in order to increase the returns on equity and assets through ensuring that their capital structure is optimal and management of commercial banks should increase their commitments into capital structure in order to improve earnings from their business transaction.

keywords:

Debt Capital, Financial Performance, Commercial Banks

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