ABSTRACT

The broad objective of this research is to evaluate the impact of capital structure on profitability of commercial banks in Nigeria, 2008-2017. The specific objectives are to: evaluate the impact of shareholders’ fund on profitability of commercial banks in Nigeria, evaluate the impact of total asset on profitability of commercial banks in Nigeria. Investigate the impact of financial leverage on profitability of commercial banks in Nigeria. Ex-post-facto research design was adopted. The traditional panel least square regression (PLSR) was used in the model. The study applied panel data models on annual data of the commercial banks within the scope. In order to circumvent endogeneity problems, panel estimation techniques of fixed and random effects was adopted in this study, Panel data estimation allows for the control of individual-specific effects usually unobservable which may be correlated with other explanatory variables included in the specification of the relationship between dependent and explanatory variables using Haussmann test. Result from the Haussmann test statistics reveals that Shareholders’ fund had a negative and significant impact on profitability of commercial banks in Nigeria. Debt/total asset had a positive and significant impact on profitability of commercial banks in Nigeria. Financial leverage had a positive and significant impact on profitability of commercial banks in Nigeria. The study concluded that financial leverage and total assets were positively and  significant in impacting profitability of commercial banks in Nigeria while shareholder fund was negative significant in impacting profitability of commercial banks in Nigeria. The study also recommended that commercial banks should imbibe trade off capital structure theory in financing its operations by either substituting gearing for shareholders’ fund or shareholders’ fund for gearing until an optimal and desired capital structure is arrived at.