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The Impact of Debt Structure on Corporate Financial Performance: Evidence from Nigerian Banks

Saborogha Uchechi Boneri PhD, Ikwuagwu Henry Chinedu PhD, Opara Caroline Akugbor

Abstract

This study investigates The Impact of Debt Structure on Corporate Financial Performance, evidence from Nigerian Banks using panel data from five selected deposit money banks over a ten- year period (2009–2018). The study aims to assess how different forms of debt—Short-Term Debt to Total Assets (SDTA) and Long-Term Debt to Total Assets (LDTA)—affect financial performance, measured by Return on Assets (ROA). Descriptive statistics reveal that Nigerian banks are highly leveraged with short-term debt, averaging 76.4%, while long-term debt accounts for just 9% of total assets. The regression model was estimated using fixed effects, guided by the Hausman specification test. The regression results show that both SDTA (? = 0.5264, p = 0.7850) and LDTA (? = 0.0388, p = 0.5882) have positive but statistically insignificant effects on ROA. The model exhibits good explanatory power with an R-squared of 0.7766 and an F-statistic of 4.8681 (p = 0.0039), indicating overall model significance. These findings suggest that while Nigerian banks rely heavily on short-term debt financing, neither short-term nor long-term debt significantly influences profitability. Based on the findings, the study recommends that bank managers and shareholders critically evaluate their debt composition, focusing on cost- effectiveness and strategic alignment. The study also encourages investors to consider the debt structure of banks as a factor influencing expected returns. Overall, the results challenge conventional theories suggesting a strong link between capital structure and performance, indicating that in the Nigerian banking context, other variables may play more dominant roles in shaping profitability.

Keywords

Debt StructureReturn on AssetsShort-Term Debt to Total Assets (SDTA) and LongTerm Debt to Total Assets (LDTA)and Financial Performance.

References

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