Effect of Capital Structure on the Performance of Deposit Money Banks

  • Abdulrashid Ibrahim Sadiq Department of Accounting and Finance, Abubakar Tafawa Balewa University Bauchi, Nigeria
  • Pofi Wendy Kachollom Department of Accounting and Finance, Abubakar Tafawa Balewa University Bauchi, Nigeria
  • Saminu Inuwa Dasuki Department of Accounting and Finance, Abubakar Tafawa Balewa University Bauchi, Nigeria
  • Mohammad Yusuf Department of Accounting and Finance, Abubakar Tafawa Balewa University Bauchi, Nigeria
Keywords: Capital Structure, Financial Performance, Debt, Equity


The objective of this study is to examine the effect of capital structure onthe financial performance of Deposit Money Banks in Nigeria. Secondary data was obtained from the financial statements of Deposit Money Banks listed in the Nigerian Stock Exchange.Four banks were selected as samples and data from their financial statements for a period of 10 years (2006-2015). The study has employed the use of Pearson correlation coefficient and GLS regression model to analyze the effect of capital structure on the performance of some selected. The performance variables used in the study were, Return on Asset (ROA), Return on Equity (ROE) and Return on Capital Employed (ROCE). Findings from the study showed that capital structure has an effect on the financial performance of listed deposit money banks in Nigeria.Based on the results, the study recommends thatdeposit money banks in Nigeria should employ an appropriate mix of debt and equity capital and strike a balance between their choice of capital structure and its effect on their performance, as this will affect the shareholders risk returns and the cost of capital. Furthermore, the banks should increase their assets as this will help them to be more positioned for better performance and the government should improve liquidity in the Nigerian Financial Market to enable deposit money banks raise long term debt and reduce over dependency on short term debt.


Abdul G. (2012). The Relationship of Capital Structure Decisions with Firm Performance: A Study of the Engineering Sector of Pakistan. International Journal of Accounting and Financial Reporting, 2(1).
Abor, J. (2005). The Effect of Capital Structure on Profitability: An Empirical Analysis of Listed Firms in Ghana. Journal of Risk Finance, 6, 438-447.
Akintoye, I. R. (2011).Sensitivity of Performance to Capital Structure. European Journal of Social Science, 7(1): 163-144.
Akinyomi, O. J. (2013).Effect of Capital Structure on Firms Performance: Evidence from Nigerian Manufacturing Company. International Journal of Innovative Research and Studies, 2(9).
Alfred, D. D. (2007). Corporate Finance: Issues, Investigations, Innovations and Applications (2nd ed.). Lagos: High Rise Publication.
Brealey R.A and Myers S.C. (2001). Principles of Corporate Finance.Sixth edition, McGraw-Hill Irin companies, 1333 Burr Ridge Parkway, Burr Ridge, IL 60521.
Brealey R.A., Myers S.C. and Allen F. (2006). Corporate Finance.Eighth Edition, McGraw-Hill Irin companies, Inc.1221 Avenue of the Americas, New York, NY 10020.
Boodhoo,R (2009).Capital structure and Ownership Structure:are view of literature.The Journal of Online Education, January Edition,1-8.
Dittman A.Thakor A. (2007).Why do Firms Issue Equity?. The Journal Finance,1(1), 1-54.
Inanga, E. L., and Ajayi, C. A. (1999).Accountancy. Lagos: The CIBN Press Limited.
Iorpev, L. and Kwanum, I. M.(2012).Capital Structure and Firm Performance: Evidence from Manufacturing Companies in Nigeria. International Journal of Business and Management Tomorrow, 2(5),1-7.
Jensen,M and Ruback,R(1983).The Market for Corporate Control:the Scientific Evidence.Journal of Financial Economics,11,5-50.
Jensen, M. and Meckling W. (1976). Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure. Journal of Financial Economics, 3, 305–60.
Modigliani, F. and Miller, M. H. (1958).The Cost of Capital, Corporate Finance and the Theory of Investment.American Economic Review, 48, 261-97.
Myers, S. C. and N. S. Majluf (1984).Corporate Financing and Investment Decisions.When Firms Have Information That Investors Do Not Have.Journal ofFinancial Economics, 13, 187-222.
Ngoc-Phi-Anh D. & Jeremy D.(2011). Firm Characteristics, Capital Structure and Operational Performance: A Vietnamese Study. APEA 2011 Conference Pusan National University, Busan, Korea.
Nour A.(2012). Capital Structure and Firm Performance; Evidence from Palestine Stock Exchange.Journal of Money, Investment and Banking,23.
Onaolapo, A and Kajola, S. (2010).Capital Structure and Firm Performance: Evidence from Nigeria.European Journal of Economics, Finance and Administrative Sciences.
Pandey, I. M. (1999).Financial management (8th ed.). New Delhi: Vikas PublishingHousePVT Ltd.
Roy, L. and Minfang, L. (2000).Environmental Dynamism, Capital Structure and Performance: A theoretical Integration and an Empirical Test. Strategic Management Journal.
Sa’ad, N. M. (2010).Corporate Governance Compliance and the Effects to Capital Structure. International Journal of Economics and Financial, 2(1),105-114.
Smirlock,M.(1985).Evidence on the non- Banking. Journal of Money, Credit, and Banking,17(1),69-83.
Tsuji, C. (2011). Recent Development of the Agency Theory and Capital Structure. Economics and Finance Review, 1(6), 94-99.
Warokka, A., Herrera, J. J., and Abdullah, H. H. (2011).East Asian Corporate Governance: A Test of the Relation between Capital Structure and Firm Performance. International Journal of Economics and Finance Studies, 3(2),1-10.
Weill, L. (2008). Leverage and Corporate Performance: Does Institutional Environment Matter?. Small Business Economics, 30(3), 251-265.
Zeitun, R. &Tian, G. G. (2007).Capital structure and Corporate Performance: Evidence from Jordan. Australasian Accounting Business and Finance Journal.1(1).
How to Cite
Ibrahim Sadiq, A., Kachollom, P., Dasuki, S., & Yusuf, M. (2017). Effect of Capital Structure on the Performance of Deposit Money Banks. International Journal of Accounting & Finance Review, 1(1), 12-23. https://doi.org/10.46281/ijafr.v1i1.14
Regular Research Article/ Short Communication Article