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Bank Capital, Operating Efficiency, and Corporate Performance in Nigeria

Author

Listed:
  • Salami Abdulai Agbaje

    (Department of Accounting, Al-Hikmah University, Ilorin, Nigeria)

  • Uthman Ahmad Bukola

    (Department of Accounting, Al-Hikmah University, Ilorin, Nigeria)

Abstract

This study examines the impact of bank capital and operating efficiency on the Nigerian deposit money bank financial performance with a view to resolving risk-based and non-risk-based capitals’ dichotomy existing in the bank literature. Using bank-specific data obtained from the annual reports and accounts of 15 banks listed on the Nigerian Stock Exchange between 2012 and 2015, the panel data regression analyses revealed the superiority of standard capital ratio of equity-to-total-assets, a non-risk-based capital, over other measures. While all measures, both risk-based and non-risk-based capitals, showed significantly positive effects on bank performance as measured by return-on-asset, mixed results were obtained from other indicators: return-on-equity and net-interest-margin. Overall, only equity-to-total-assets influenced all adopted performance indicators positively. It was also found that operating efficiency measured by cost-to-income ratio had negative impact on bank performance, but on the average it appeared too high. Thus, incorporating the standard capital ratio of equity-to-total assets into regulatory regime by the banks’ regulator is recommended to ensure its relevance is not overshadowed.

Suggested Citation

  • Salami Abdulai Agbaje & Uthman Ahmad Bukola, 2018. "Bank Capital, Operating Efficiency, and Corporate Performance in Nigeria," Acta Universitatis Sapientiae, Economics and Business, Sciendo, vol. 6(1), pages 61-87, December.
    • Handle: RePEc:vrs:auseab:v:6:y:2018:i:1:p:61-87:n:4
    DOI: 10.2478/eb-2018-0004
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    References listed on IDEAS

    as
    1. Leszek Dziawgo, 2014. "Greening financial market," Copernican Journal of Finance & Accounting, Uniwersytet Mikolaja Kopernika, vol. 3(2), pages 9-24.
    2. Mehmet Huseyin Bilgin & Hakan Danis & Ender Demir & Ugur Can (ed.), 2016. "Business Challenges in the Changing Economic Landscape - Vol. 1," Eurasian Studies in Business and Economics, Springer, edition 1, number 978-3-319-22596-8, December.
    3. Leszek Dziawgo & Ewa Dziawgo, 2016. "Ecological Evolution of Financial Market: Ecologically Responsible Investment," Eurasian Studies in Business and Economics, in: Mehmet Huseyin Bilgin & Hakan Danis & Ender Demir & Ugur Can (ed.), Business Challenges in the Changing Economic Landscape - Vol. 1, edition 1, pages 167-178, Springer.
    4. Mehmet Huseyin Bilgin & Hakan Danis & Ender Demir & Ugur Can (ed.), 2016. "Business Challenges in the Changing Economic Landscape - Vol. 2," Eurasian Studies in Business and Economics, Springer, edition 1, number 978-3-319-22593-7, December.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    risk-based capital; non-risk-based capital; cost-to-income ratio; deposit money banks; Nigeria;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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