The Impact of Capital Structure on the Financial Performance of Listed Deposit Money Banks in Nigerian (dmbs)

ABSTRACT The banking sector consolidation exercise that took place in Nigeria in 2005 aid not only reduce (he number of Deposit Money Banks (DMBs) but diversified their capital structure and adjusted their regulatory capital requirements. Given these developments, it is imperative that the DMBs determine the most optimal financing mix which minimizes the cost of financing as well as maximizes returns. This study empirically examined the impact of capital structure (owners 'funds and borrowed funds) on performance of Deposit Money Banks in Nigeria. They employed the secondary method of data collection to compute the annual report ofKeystor e Plc., Ahmadu Bello way, Kaduna. E-view 10 statistical package was used to compute the descriptive statistics of annual compilation of the financial statements from the bank Consistent with the agency and static trade-off theories of capital structure and earlier empirical findings in Nigeria, the results further found that there is no significant relationship between the proportion of equity funds to capital employed (ECEP) and return on assets (ROA) and there is no significant relationship between the proportion of long term debt to equity funds (DEFP) and return on assets (ROA). Following these findings therefore, the study recommends thatDMBs in Nigeria should study and understand the dynamics of capital structure to enable them make optimal capital mix decision, DMBs should employ high debt-to-equity ratio in their operations in order to reduce weighted average cost of capital and enhance gross profit, the study also suggests the use of more debt in financing real investment with positive net present values and the management and board of directors of DMBs should incentivize lenders and depositors so as to enhance easy access to funds other than shareholders