IIARD International Institute of Academic Research and Development

WORLD JOURNAL OF FINANCE AND INVESTMENT RESEARCH (WJFIR )

E-ISSN 2550-7125
P-ISSN 2682-5902
VOL. 8 NO. 3 2024
DOI: 10.56201/wjfir.v8.no3.2024.pg35.54

---

Influence of Financial Structure on Performance of Deposit Money Banks (DMBs) in Nigeria (2007-2022)

Mbanefo Patrick Amaechi, Ph.D and Iwuchukwu Ifeanyi Victor

---

Abstract

This study generally examined the Influence of Financial Structure on Deposit Money Banks (DMBs) Performance in Nigeria and specifically attempts to ascertain, explore and evaluate the extent to which short term debt to asset ratio, long-term debt to asset ratio and total debt to equity ratio respectively, affect the Return on Capital Employed (ROCE) of selected DMBs in Nigeria. This study adopted ex-post facto research design on a population thirteen (13) listed DMBs in Nigeria. Purposive sampling was used in selecting a sample size of four (4) deposit money banks. Secondary data were obtained from the annual reports of the selected banks for sixteen years covering the period of 2007 to 2022 which was subjected to descriptive analysis. Granger causality was deployed in exploring the causal relationships between the variables, Ordinary Least Square regression was deployed in testing the hypotheses of the study. The findings revealed that: shortterm debt to asset ratio has a significant negative impact on the return on capital employed of selected DMBs in Nigeria (p-value = 0.000); long-term debt to asset ratio significantly and negatively affects the return on capital employed of deposit money banks in Nigeria (p-value = 0.000); total debt to equity ratio has a non-significant positive effect on the return on capital employed of selected DMBs in Nigeria (p-value = 0.1133). The study recommends that management of DMBs in Nigeria should prioritize maintaining a balanced mix of short-term and long-term debt in order to mitigate liquidity risks and ensure smoother cash flow management, ultimately enhancing financial performance.

keywords:

Deposit Money Banks, Financial Structure, Equity, Debt, Return on Capital Employed

---

References:

Abbadi, S. M., & Abu-Rub, N. (2010). The effect of capital structure on the performance of
Palestinian financial institutions. British Journal of Economics, Finance and Management
Sciences, 3(2), pp92-101.
Abor, J. (2005). the effect of capital structure on profitability: an empirical analysis of listed firms
in Ghana, Journal of Risk Finance, 6(5), pp. 438-447.
Abubakar, A. (2015). Relationship between financial leverage and financial performance of
deposit money banks in Nigeria. International Journal of Economics, Commerce and
Management, 3(10), pp759-778.
Aburime, U. T., (2008). Relationship of political affiliation on bank profitability in Nigeria.
African Journal of Accounting, Economics, Finance and Banking Research, 4(4), pp61-75.
Adah, A. (2012). Relationship of recapitalization on the financial performance of deposits money
banks in Nigeria (PhD Accounting and Finance), ABU, Zaria.
Adair, J. T. A., (2006)., Corporate Finance Demystified. New York The McGraw-Hill.
Adesina, J., Nwidobie, B., & Adesina, O. (2015). Capital structure and financial performance in
Nigeria. International Journal of Business and Social Research, 5(2), pp21-31. Allahham, M. (2015) Relationship of capital structure on bank financial performance of al ahli
bank in Saudi Arabia. Global Journal of Management and Business research: corporate
Finance., 15(9).
Allen, F., & Carletti, E. (2013). Deposits and bank capital structure. FIC Working Paper, 13(13),
pp1-58.
Aliyu, A.A (2022). Credit risk management and financial performance.an empirical study of
deposit money banks in Nigeria. Accounting and Taxation Review,7(1)17 29
Al-Tally, H. (2014). An Investigation of the Effect of Financial Leverage on Firm Financial
Performance in Saudi Arabia’s Public Listed Companies. (Doctor of Business
Administration), Victoria Melbourne, Australia.
Al-Tamimi, H. H., (2010, Factors influencing performance of the UAE Islamic and conventional
national banks. Global Journal of Business Research, 4(2), pp1-10.
Anafo, S. A., Amponteng, E. & Yin, L. (2015). Relationship of capital structure on profitability of
banks listed on the Ghana Stock Exchange. Research Journal of Finance and Accounting,
6 (16), 26-34.
Ben Naceur, S., & Goaied, M. (2008). The determinants of commercial bank interest margin and
profitability: Evidence from Tunisia. Frontiers in Finance and Economics, 5(1), pp.106-
130.
Bhunia, A., Mukhuti, S., & Roy, S. (2011). Financial Performance Analysis-A Case Study.
Current Research Journal of Social Sciences, 3(3), pp.269-275.
Brooks, C. (2008). Introductory econometrics for finance. New York: Cambridge University Press.
Central Bank of Nigeria [CBN] 2017, list of deposit money banks in
Nigeria.www.cebank.gov.ng.
Chandra, S., & Juliawati, C. (2020). Effects of long term debt to total assets, short term debt to
total assets, total asset turnover, and inventory turnover on profitability of manufacturing
companies in consumer goods subsector listed on IDX. Journal of Applied Business and
Technology, 1(3), 212-222.
Chechet, I., & Olayiwola, A. (2014). Capital structure and profitability of Nigerian quoted firms:
The Agency Cost Theory Perspective. American International Journal of Social Science,
3(1), pp.139-158.
Chima, O. (2016). Financial stability report reveals decline in banks’ asset quality. Retrieved 19th
May, 2016 from http://www.thisdaylive.com/index. php/2016/05/19/ financial-stabilityreport-reveals-decline-in-banks-asset-quality/
Chinaemerem, O., & Anthony, O. (2012). Relationship of Capital Structure on the Financial
Performance of Nigerian Firms. Arabian Journal of Business and Management Review
(OMAN Chapter), 1(12), pp.43-61.
Creswell, J. W. (2012). Educational research: planning, conducting, and evaluating quantitative
and qualitative research (4th ed.). Boston: Pearson Education, Inc.de Bandt, O., Camara, B.,
Pessarossi, P., and Rose, M. 2014, Débats économiques et financiers N 12.
Dlabay, L. R., and Burrow, J. L. (2008). Business Finance. USA: Thomson SouthWestern.
Edralin, L. 2015, Capital structure and profitability of selected universal banks in the Philippines
Paper presented at the 9th global business conference manila, Philippines.Enekwe, C. I., Agu, I. C. & Nnagbogu, K.E. (2014). The Effect of Financial Leverage on Financial
Performance: Evidence of Quoted Pharmaceutical Companies in Nigeria. Journal of
Economics and Finance, 5(3). pp.17-25.
First Securities Discount House [FSDH]. 2016, Nigerian Banking Industry Report.
Ganiyu, Y. O. (2015). Dynamic Analysis of the Relationship of Capital Structure on Firm
Performance in Nigeria. (PhD), De Montfort, United Kingdom.
Gansuwan, P., & Önel, Y. C. (2012). The Influence of Capital Structure on Firm Performance A
quantitative study of Swedish listed firms (Master), Umeå Sweden.
Garson, D. (2012). Testing Statistical Assumptions. Ashiboro: Statistical Associates Publishing
Gebremichael, F. G. (2016). The Relationship of Capital Structure on Profitability of Commercial
Bank of Ethiopia. Journal of Poverty, Investment and Development, 28, pp.17-36.
Goyal, A. M. (2013). Relationship of Capital Structure on Performance of Listed Public Sector
Banks in India. International Journal of Business and Management Invention, 2(10), pp.
35-43.
Green, W. H. (2008). Econometrics analysis (6th ed.). New Jersey: Perason Prentice Hall.
Gujarati, D. N. (2004). Basic Econometric 4th Ed., New York, McGraw-Hill Inc.
Hafiz, U. A. (2018). Impact of capital structure on financial performance of listed deposit money
banks in Nigeria. (MSc. Banking and Finance Thesis), Abubakar Tafawa Balewa
University, Bauchi.
Hailu, A. (2015). The relationship of capital structure on profitability of Commercial Banks in
Ethiopia. (M.Sc. Accounting and Finance Thesis), Addis Ababa, Ethopia.
Hairs, J. F., Black, W. C., Babin, B. J. & Anderson, R. E. (2010). Multivariate Data Analysis (7th
Edn.) Pearson Prentice Hall.
Harding, J. P., Liang, X. & Ross, S. L. (2007). The Optimal Capital Structure of Banks: Balancing
Deposit Insurance, Capital Requirements and Tax- Advantaged Debt. Economics Working
Papers; University of Connecticut.
Harris, M & Raviv, A. (1991). Theory of Capital Structure. The Journal of Finance, 46(1), pp.
297-355.
Hausman, J.A. (1978). Specification test in econometrics. Econometrica, 46: pp.1251-1271
Hoechle, D. (2007). Robust standard errors for panel regressions with cross-sectional dependence.
The Stata Journal. 7 (3) pp.281-312.
Idode, P.E., Adeleke, T. M., Ogunlowore, A. J. & Ashogbon, O. S. (2014). Influence of capital
structure on profitability: Empirical Evidence from listed Nigerian banks. OSR Journal of
Business and Management. 16(11), pp.22-28.
Igbinosa, S. (2015). Another Look at Capital Structure and Corporate Performance in Emerging
Markets: The Case of Nigeria. Asian Journal of Business Management, 7(1), pp.1-12.
Ikpefan O. A. (2012). Issues in Banking and Finance, CIBN Press, pp.3
Imeokparia, L. (2015). Capital Base and Performance of Money Deposit Banks in Nigeria: Pre and
Post Consolidation Era. International Journal of Managerial Studies and Research. 3(1),
pp.74-82 IMF 2017, Nigerian Financial Sector Developments and Vulnerabilities. Country
Report,No.12/81.
Jensen, M. & Meckling, W. H. (1976). Theory of the Firm: Managerial Behaviour, Agency Cost
and Ownership Structure, Journal of Financial Economics, 3, pp. 305 –360.Karemera J. M (2013). The relationship between regulation and financial performance of Rwanda
commercial banks. International Journal of Business and Management Reviews
Kajirwa, H. I. (2015). Effects of debt on firm performance: A Survey of Commercial Banks Listed
on Nairobi Securities Exchange. Global Journal for Advanced Research. 2(6). pp.1025-
1029. t6
Khan, M., Sajid, M., Waseem, M., & Shehzad, M. (2016). Capital Structure Composition
Demeanour towards Corporate Financial Performance Potential. International Journal of
Innovation and Applied Studies, 14(1), pp.210-217.
Kim, E. (1978). A mean-variance t

DOWNLOAD PDF

---

Back