Leverage and Financial Performance of Listed Deposit Money Banks in Nigeria

Abstract

Consideration is given in this paper to the effect that financial leverage may have on financial results of deposit money banks that operate in Nigeria. The measurement of financial performance was done using Return on Assets (ROA), while debts (both long-term and short-term) served as the explanatory variables. The main data for analysis was derived from financial statements of the 14 banks in the sample for the ten-year period 2009-2018. Consequent upon the diagnostic tests, robust Ordinary Least Square (OLS) was chosen as the tool for the analysis. From the regression results, ROA of the banks in the sample was affected significantly by long-term debt ratio and short-term debt ratio, the former negatively and the latter positively. Principally, a conclusion of the paper is that the financial performance of banks in Nigeria is affected positively and significantly by higher
short-term debt. Thus, it is recommended among other things that managers of banks should explore ways of debt of short-term nature especially in the area of customer deposit.