Capital structure and profitability: the case of Nigerian deposit money banks

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This paper aimed to empirically examine the extent to which capital structure impacts the profitability of Nigerian Deposit Money Banks considering the profitability of eight Nigerian Deposit Money Banks from 2003 to 2018 (16 years). A descriptive research design was adopted for this study, and data were analyzed using regression. The study used secondary data obtained from published annual reports of selected Nigerian Deposit Money Banks on the Nigerian Stock Exchange (NSE) for four years (2003–2018). The study concluded that the indicators used to measure capital structure (debt-equity ratio and leverage ratio) and profitability (returns on equity) had a negative relationship. This means that the use of debts mixed with equity (debt-equity ratio and leverage ratio) in improper proportion as financing methods can negatively affect profitability. Hence, there is a need to identify the optimal mix of capital structure (debts mixed with equity) that maximizes profitability, as well as firm and shareholder value with minimum agency costs as suggested by the trade-off theory and agency theory, respectively. The alternative is to give preference to retained earnings (internal source of finance) as funding source.

Acknowledgment
All researchers and non-researchers that contributed to this paper are highly appreciated.

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    • Table 1. Descriptive statistics of variables for the empirical model
    • Table 2. Regression analysis results for the empirical model
    • Conceptualization
      Adegbola Olubukola Otekunrin, Johnson Kolawole Olowookere, Damilola Gabriel Fagboro
    • Data curation
      Adegbola Olubukola Otekunrin, Johnson Kolawole Olowookere, Damilola Gabriel Fagboro
    • Formal Analysis
      Adegbola Olubukola Otekunrin, Johnson Kolawole Olowookere, Damilola Gabriel Fagboro
    • Funding acquisition
      Adegbola Olubukola Otekunrin, Tony Ikechukwu Nwanji, Johnson Kolawole Olowookere, Damilola Gabriel Fagboro
    • Investigation
      Adegbola Olubukola Otekunrin, Johnson Kolawole Olowookere, Damilola Gabriel Fagboro
    • Methodology
      Adegbola Olubukola Otekunrin, Damilola Gabriel Fagboro
    • Project administration
      Adegbola Olubukola Otekunrin, Tony Ikechukwu Nwanji, Damilola Eluyela, Johnson Kolawole Olowookere, Damilola Gabriel Fagboro
    • Resources
      Adegbola Olubukola Otekunrin, Tony Ikechukwu Nwanji, Damilola Eluyela, Damilola Gabriel Fagboro
    • Software
      Adegbola Olubukola Otekunrin, Johnson Kolawole Olowookere, Damilola Gabriel Fagboro
    • Supervision
      Adegbola Olubukola Otekunrin, Damilola Gabriel Fagboro
    • Validation
      Adegbola Olubukola Otekunrin, Johnson Kolawole Olowookere, Damilola Gabriel Fagboro
    • Writing – review & editing
      Adegbola Olubukola Otekunrin, Tony Ikechukwu Nwanji, Damilola Eluyela, Johnson Kolawole Olowookere, Damilola Gabriel Fagboro
    • Visualization
      Johnson Kolawole Olowookere
    • Writing – original draft
      Damilola Gabriel Fagboro