Capital Risk, Leverage Risk and Financial Performance of Listed Deposit Money Banks in Nigeria
DOI:
https://doi.org/10.5281/zenodo.19310446Keywords:
Capital Risk, Financial Performance, Leverage RiskAbstract
The financial performance of listed deposit money banks (DMBs) in Nigeria has remained inconsistent despite regulatory reforms. This study investigates the effect of capital adequacy risk and leverage risk on the financial performance of listed DMBs in Nigeria. The objective is to determine the extent to which capital and leverage risks influence profitability, measured by Return on Assets (ROA). The study adopts an ex post facto research design, analyzing panel data from 12 listed DMBs over a ten-year period (2015–2024). Descriptive statistics, correlation matrix, diagnostic tests (including the Hausman test), and panel regression analysis were employed to evaluate the relationships among the variables. Findings reveal that capital adequacy ratio (CAR) has a positive and statistically significant effect on ROA (coefficient = 0.134, p < 0.01), indicating that stronger capital buffers enhance financial performance. Conversely, debt-to-equity ratio (DER) has a negative and significant effect on ROA (coefficient = -0.087, p < 0.05), suggesting that excessive leverage undermines profitability. The model’s R² value of 0.67 shows strong explanatory power. The study concludes that prudent capital management and conservative leverage strategies are crucial to improving bank performance in Nigeria’s volatile financial environment. It recommends that regulators enforce stricter capital adequacy requirements, while bank managers limit excessive borrowing to avoid financial distress.
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