Bank Capital Structure, Liquidity and Profitability Evidence from the Nigerian Banking System
This study presents empirical evidence of the effect of bank capital structure and liquidity on profitability using Nigerian data for the period 1980-2006 studied. The data were analyzed using descriptive statistics and the auto-regressive distributed lag (ADL) model. Specifically, the study applied data on an OLS methodology that incorporated unit root tests for stationarity and co- integration. We find a positive influence of cash reserve ratio, liquidity ratio and corporate income tax; and a negative influence of bank credits to the domestic economy, savings deposit rate, gross national savings (proxy for deposits with the central bank), balances with the central bank, inflation rate and foreign private investments, on banking system profits. We equally observe that liquidity ratio leads banks’ profits in Nigeria, closely followed by balances with the central bank and then, gross national savings and foreign private investments, followed suit in that order. We therefore recommend a drastic reduction in balances with central bank, liquidity ratio and cash reserve ratio profiles by the monetary authorities to enable banks create adequate credits and release more money into circulation for effective financial intermediation to occur; ensure effective and efficient management of bank liquidity by banks to moderate levels so as to optimize profitability, and curb perennial unethical banking practices such as directly engaging in trading, importation and exportation of goods, and other speculative deals, instead of lending to the domestic economy.
Volume (Year): 2 (2012)
Issue (Month): 1 (January)
|Contact details of provider:|| Web page: http://hrmars.com/index.php/pages/detail/Accounting-Finance-Journal|
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Charles J. Hadlock & Christopher M. James, 2002. "Do Banks Provide Financial Slack?," Journal of Finance, American Finance Association, vol. 57(3), pages 1383-1419, June.
- Rajan, Raghuram G & Zingales, Luigi, 1995.
" What Do We Know about Capital Structure? Some Evidence from International Data,"
Journal of Finance,
American Finance Association, vol. 50(5), pages 1421-1460, December.
- Raghuram G. Rajan & Luigi Zingales, 1994. "What Do We Know About Capital Structure? Some Evidence from International Data," NBER Working Papers 4875, National Bureau of Economic Research, Inc.
- Frank, Murray Z. & Goyal, Vidhan K., 2003. "Testing the pecking order theory of capital structure," Journal of Financial Economics, Elsevier, vol. 67(2), pages 217-248, February.
- Laurence Booth, 2001.
"Capital Structures in Developing Countries,"
Journal of Finance,
American Finance Association, vol. 56(1), pages 87-130, February.
- Booth, L. & Asli Demirgu-Kunt, V.A. & Maksimovic, V., 1999. "Capital Structure in Developing Countries," Rotman School of Management - Finance 00-001, Rotman School of Management, University of Toronto.
- Myers, Stewart C. & Majluf, Nicolás S., 1945-, 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Working papers 1523-84., Massachusetts Institute of Technology (MIT), Sloan School of Management.
- Titman, Sheridan & Wessels, Roberto, 1988. " The Determinants of Capital Structure Choice," Journal of Finance, American Finance Association, vol. 43(1), pages 1-19, March.
- Harris, Milton & Raviv, Artur, 1991. " The Theory of Capital Structure," Journal of Finance, American Finance Association, vol. 46(1), pages 297-355, March.
- Myers, Stewart C., 1984. "Capital structure puzzle," Working papers 1548-84., Massachusetts Institute of Technology (MIT), Sloan School of Management.
- Myers, Stewart C, 1984. " The Capital Structure Puzzle," Journal of Finance, American Finance Association, vol. 39(3), pages 575-592, July.
- Stewart C. Myers, 1984. "Capital Structure Puzzle," NBER Working Papers 1393, National Bureau of Economic Research, Inc. Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:hur:ijaraf:v:2:y:2012:i:1:p:98-113. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Hassan Danial Aslam)
If references are entirely missing, you can add them using this form.