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

Abstract

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 the 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 the 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, M45, M46