ABSTRACT

The study examined effect of capital structure on financial performance of deposit money banks in Nigeria. It adopted ex post facto research design and utilized secondary data obtained from a cross section of 4 banks from 2007 to 2018. The study formulated three hypotheses based on each specific objective. Based on the cross section and time series engaged, panel unit root test was carried out to and found that long term debt had order of integration at first difference while the other variables were integrated at level. The study employed panel regression method of data estimation was employed to evaluate the relationship of the variables specifically the pooled mean ARDL technique. The study has both long and short run implication between capital structure and financial performance proxies. In the long run, long term debts have positive significant relationship with profit after tax while equity has positive insignificant relationship with profit after tax. In the short run, long term debts have negative significant effect on profit after tax while equity has positive significant effect of profit after tax. The study ascertained that there is significant effect of capital structure on profit after tax of banks in Nigeria. On the relationship between capital structure and return on assets, long term debts have negative significant effect on return on assets in the long run while equity has positive significant effect on return on assets of banks in the long run. In the short run, long term debts have negative insignificant effect on return on assets while equity has positive insignificant effect on return on assets of banks. The study found that effect of capital structure on return on assets of banks in Nigeria is not significant. Long term debts have negative insignificant relationship with return on equity while equity has positive significant effect on return on equity of banks in the long run. In the short run, both long term debts and equity have positive insignificant effect on return on equity of banks. From the hypotheses tested, capital structure has significant effect on both profits after tax and return on equity of banks in Nigeria while it has no significant effect on return on assets deposit money banks in Nigeria. The study therefore concludes that capital structure has significant effect on financial performance of banks in Nigeria.