Effect of Capital Structure on the Performance of Deposit Money Banks in Nigeria

Abstract

This article evaluates the influence of capital structure on the performance of banks in Nigeria. The goals were to explore the effect of long-term debt ratio, short-term debt ratio, and debt-toequity ratio on the return on assets of banks in Nigeria. Secondary data were gathered from the audited financial statements of 13 listed banks on the Nigerian Exchange Group. The information collected covers from 2017 to 2023. The data were assessed using the multiple regression technique, which was additionally used in testing the null hypotheses of the study. The findings indicate that the long-term debt ratio (LTDR) shows an insignificant positive impact on return on assets (ROA). In contrast, short-term debt-to-ratio (STDR) and debt-to-equity ratio (DER) have a notable effect on the return on assets (ROA) of listed banks in Nigeria. The research thus concludes that capital structure significantly affects the corporate performance of listed banks in Nigeria. The study suggests that banks should utilize long-term debt cautiously in their capital structure, as excessive debt can negatively influence value. Each firm needs to identify its optimal debt-equity ratio to maximize value. Moreover, banks should improve their debt-to-equity ratio to attract more investors and boost share prices and overall value.