ABSTRACT

This study focuses on the effect of capital structure on the financial performance of Banks in Nigeria. The greatest issue striving against the management of any firm in Nigeria and the world over is how to minimize cost of capital and maximize shareholders wealth. The study made used of an ex-post facto research design. The data collected were then tabulated and analyzed using the simple regression analysis. The study revealed that The intercepts   of the   bank is negative meaning that without debt financing (D), equity financing (E) and debt to equity ratio (D/E), the profitability of the bank considered in this study will be negative. Debt financing (D) is negatively related to profitability of the bank as it was assumed that the slope coefficient is constant for the bank. When debts become relatively high, further increasing generate significant agency of bankruptcy of financial distress between bondholders and shareholders. This is then reflected as a negative relationship. The value of debt financing is -0.040657, meaning that a unit increase in debt financing will pull down the profit of the shareholders by 4%. Equity financing exist a positive coefficient of 0.389768 for the bank that is, equity financing is positively related to profitability of the bank considered in the study. It then implies that an increase on equity financing of the bank, the profitability of the bank will increase by about 40%. It therefore, explained that shareholders of the banks tend to maximize more profit through equity financing. It is therefore, perfectly significant. The financial ratio which is debt to equity ratio is positive with a value of 407776.6; it explained that there is a positive relationship between debt to equity ratio and profitability of the bank under investigation. An increase on debt-equity financing will bring about 407776.6 units increase in profit of the bank. Conclusively, Debt/equity ratio significantly influences financial performance, with most investors preferring to invest in companies with a smaller debt/equity ratio. Also, it could be concluded from the above findings that the performance of First bank Nigeria Plc is significantly related to the capital structure ratios. It is recommended that In improving banks’ performance, share of equity financing in the capital structure should be increased. To avoid conflict of managers with shareholders interest, managers should go for long run value maximization of the firm which satisfies both managers and shareholders interest.