Effect of Capital Adequacy on Financial Performance of Quoted Deposit Money Banks in Nigeria

The objective of this study was to ascertain the effect of Capital Adequacy on Financial Performance with a focus on selected quoted Deposit Money Banks in Nigeria from 2010-2015. This study made use of secondary data obtained from fact books, annual reports and account of the Deposit Money Banks under study. The data were subjected to statistical analysis using Pearson Coefficient of Correlation, Multiple Regression Analysis, Variance Inflation Factors, Multicollinearity, Heteroskedasticity test and Hausman test. The result of this study revealed that there is a positive and significant relationship between Capital Adequacy and Financial Performance. It was also empirically verified that Capital Adequacy has a statistically significant effect on Financial Performance on Deposit Money Banks at 5% level of significance. This study recommended that banks should avoid overreliance on debt, as increase in the proportion of debt in the capital structure increases the financial risk and the risk of financial distress and bankruptcy.

Keywords: Capital Adequacy, Financial Performance, Non-Performing Assets

JEL Classification: M41

Suggested Citation: Suggested Citation

Amahalu, Nestor and Okoye, Emmanuel Ikechukwu and Nweze, Chike and Obi, Juliet and Okika, Elochukwu, Effect of Capital Adequacy on Financial Performance of Quoted Deposit Money Banks in Nigeria (July 26, 2017). Chapter 57 in the proceedings of the 2017 International Conference on African Entrepreneurship and Innovation for Sustainable Development (AEISD) . Available at SSRN: https://ssrn.com/abstract=3039292