CAPITAL STRUCTURE AND BANK PERFORMANCE: EMPIRICAL EVIDENCE FROM LISTED NIGERIAN FIRMS

Nneka Charles-Anyaogu
Imo State Polytechnics Nigeria

Ucheoma I. Ezirim
Chinedu B. Ezirim
University of Port Harcourt Nigeria

ABSTRACT

This study examines the impact of capital structure on the profitability of listed Nigerian
banks using the co-integration, error correction, causality, and generalized method of moments’
techniques on annual average data of 13 selected banks that are listed on the Nigeria Stock
Exchange from 1985 through 2013. The results indicate that there exist long-run relationships
between capital structure variables and profitability. Debt and equity financing, as well as
leverage, granger-caused return on investments both in the short-run and long-run. The results
further showed negative but significant relationship between leverage and bank profitability.
Equity affected profitability significantly while debt effect was not significant. On the strength of
the results, Nigerian banks would be better off using more of equity financing than debt financing
in their capital structuring if the critical objective criterion is to boost returns on investments.
Keywords: Capital structure, leverage and bank profitability, debt, Nigeria