Impact of Liquidity Risk and Leverage on the Financial Performance of Nigerian Deposit Money Banks
Journal Title: Journal of Economics, Finance and Management Studies - Year 2024, Vol 7, Issue 08
Abstract
This study investigates the impact of liquidity risk and leverage on the financial performance of listed Deposit Money Banks (DMBs) in Nigeria. The study utilized a census approach to gather data from all 15 listed DMBs on the Nigerian Exchange Group as of December 31, 2022. The study spanned from 2013 to 2022, employing various statistical analyses including descriptive analysis, correlation analysis, skewness and kurtosis tests for normality, multiple regression models for fixed-effects and random-effects models, and the Hausman test to ensure robust findings. The results indicated that liquidity risk exhibited a positive and significant impact on return on equity (ROE), a measure of financial performance, with a coefficient of 0.132 and a p-value of 0.000, suggesting that effective management of liquidity risk enhances profitability. Conversely, leverage was found to have a significant negative impact on ROE, with a coefficient of -1.351 and a p-value of 0.007, highlighting that higher debt levels substantially reduce profitability. In conclusion, the study suggests that while liquidity risk can be effectively managed to enhance profitability, excessive leverage poses significant threats to financial performance. The findings underscore the importance of robust risk management strategies for improving the financial performance of listed DMBs in Nigeria. These insights are crucial for policymakers, banking executives, and investors seeking to enhance the stability and performance of the banking sector.
Authors and Affiliations
Olateju Dolapo AREGBESOLA , Olatunde WRIGHT , IfeOluwa Tomiwa KOLAWOLE , Sunday Olusola OMOJOLA
Financial Development and Economic Growth in Kenya: Evidence from the Asymmetric Autoregressive Distributive Lag
Appropriate changes in financial development are largely known to cause growth. Inflation, gross capital formation and government expenditure, believably, succinctly controls the effects and causes long term growth. Thi...
An Analysis of the Derivatives Market Performance in Kenya: A Case of Nairobi Securities Exchange Derivatives Market
The growth of the financial derivatives market has been identified as a significant channel to drive the overall growth of the capital market, and the development of capital market efficiency has been widely regarded as...
The Effect of Inflation, Interest Rate, Gross Domestic Product, Operational Efficiency Ratio, Loan to Deposits Ratio in Private Bank Return on Asset in IDX
Private Bank activities can’t be separated from the company’s profit known as Return On Assets. Bank management needs to maintain the amount of Return On Assets. The goal of this study is to examines the effect of inflat...
The Importance of Shari’ah Screening in Islamic Bank: An Islamic Jurisprudence Analysis
Islamic Banking and Finance (IBF) is a rapidly growing industry worldwide. Islamic finance (IBF) is a financial system based on Islamic law (Shari’ah). The fundamental principle of IBF is to comply with Islamic law, know...
Performance Mea surement Systems in Quick Service Restaurant Chains
Measuring performance becomes a key issue in both academia and business, as organizations are challenged to obtain efficient and effective outcomes. This research explores the effectiveness of current PMSs in QSR chains...