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CAPITAL STRUCTURE AND PERFORMANCE OF DEPOSIT MONEY BANKS IN NIGERIA
Abstract
Capital structure is one of the core decision areas in the field of finance, as it determines the existing amount of debt and equity of a bank. It is an important decision that has a close relationship with the value of bank hence its performance. Accordingly, the general objective of this study is to assess the impact of capital structure on the financial performance of Bank in Nigeria with specific reference to how debt ratio and equity ratio affect return on equity and net interest margin of banks in Nigeria. The population of the study is the entire 21 licensed DMBs in Nigeria (CBN, 2017). The sample size of 12 banks was determined using convenience sampling technique for the period 2007- 2016. The study utilizes panel design to analyse the data based on random effect estimation. The study found a positive relationship with financial performance measured by Net Interest Margin (NIM). The study recommends that more incentives need to be given to STD suppliers to effectively adjust the maturity structure of STDs. Similarly, debt should be used with caution in order to explore its tax shield and managerial efficiency benefits.
Keywords: Capital Structure, Financial Performance, Deposit Money Banks