CAPITAL STRUCTURE, ASSET LIQUIDITY AND FINANCIAL PERFORMANCE OF LISTED DEPOSIT MONEY BANKS IN NIGERIA
Keywords:
Asset Liquidity, Bank Financial Performance, Capital Structure, Debt to Asset Ratio, Debt to Equity RatioAbstract
The study determined the effect of capital structure and asset liquidity on bank financial performance. The specific objective was to examine the effect of debt to asset ratio, debt to equity ratio, and debt to market capitalisation on the return on equity of listed deposit money banks in Nigeria. The study equally analysed the extent to which current ratio moderates the effect of debt to asset ratio on the return on equity of listed deposit money banks in Nigeria. Ex-post facto research design was adopted in the study. The study population was made up of thirteen listed deposit money banks in Nigeria. Purposive sampling was used to select a sample size of eleven. Secondary data spanning from 2012 to 2024 were collected from the banks’ annual reports over a thirteen-year period. Descriptive analysis was conducted using mean, standard deviation and other measures of dispersion. Hypotheses were tested using moderated panel estimated generalised least squares. It was found that: Debt-to-Asset Ratio has a positive and significant effect on return on equity of listed deposit money banks in Nigeria (β = 1.8352; p = 0.0000); Debt-to-Equity Ratio has a negative and significant effect on return on equity of listed deposit money banks in Nigeria (β = -0.0229; p = 0.0000); Debt-to-Market Capitalisation has a negative and significant effect on return on equity of listed deposit money banks in Nigeria (β = -0.0028; p = 0.0000); Current ratio significantly and negatively moderates the effect of debt to asset ratio on the return on equity of listed deposit money banks in Nigeria (β = -0.0186; p = 0.0018). It concluded that although liquidity typically represents financial health and the ability to meet short-term obligations, it may, in the presence of high debt levels, signal underutilized capital or overly conservative financial management, which could dampen equity returns. The study recommends that financial managers should avoid maintaining excessively high current ratios in highly leveraged banks, as it can weaken the positive effects of debt on performance by tying up capital in low-return liquid assets.
Downloads
Published
Issue
Section
License
Copyright (c) 2025 International Review of Financial Studies
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.
Articles submitted to IROFS should not have been published or are currently under review by another Journal. Kindly see the guide for the preparation of the manuscript for details. Successful submission of articles by author(s) for publication clearly implies that the work is not an infringement of any existing copyright warranty as IROFS reserves the right to be indemnified by the author(s) where any breach of such warranty is proven. For ease of dissemination and to ensure proper policing of use, papers and contributions become the legal copyright of IROFS once published unless otherwise agreed.
Permission clearance should be obtained by the author(s) where applicable for the use of any content of interest not originally created by them. This must be done before the submission of the article to IROFS. Failure to do so may lead to a lengthy delay in publication, as IROFS is unable to publish any article which has permissions pending. Thus, the rights IROFS requires are:
- Non-exclusive right to reproduce the material in the article or book chapters.
- Print and electronic rights.
- To use the material for the life of the work (for instance, there should be no time restrictions on the re-use of material).
Where tables, figures or excerpts of more than 250 words are reproduced from another source, it is expected that:
- Author(s) should obtain the necessary written permission in advance from any third-party owner of the copyright for the use in print and electronic formats of any of their text, illustrations, graphics, or other material in their manuscript. Permission must also be cleared for any minor adaptations of any work not originally created by the author(s). The author (s) should not assume that any content freely available on the web is free to use.
- Where the author adapts a significant number of any material, the author(s) must inform the copyright holder of the original work.
- Author obtains any proof of consent statements
- The author must acknowledge figure(s) and content adopted or adapted in work utilizing source(s) and further capture them in the list of references.
