CAPITAL FORMATION DECISIONS AND THE PERFORMANCE OF LISTED BANKS IN NIGERIA
Aiyesan, O. O.1 and Alade, M.E. 2
1,2 Department of Accounting, Faculty of Administration and Management Science, Adekunle Ajasin University, Nigeria
1 olabode.aiyesan@aaua.edu.ng, 2 muyiwa.alade@aaua.edu.ng
ORCID: 0000-0003-4736-2829, 0000-0002-6189-9318
ABSTRACT
This study examines the connection linking capital formation and firm accomplishment in the Nigerian banking sector. The study explores the various components of capital formation decisions such as debt to equity ratio, debt to asset ratio, short term to asset ratio, and short-term equity to asset ratio while earnings per share and market capitalization were control variables. The finding revealed that capital formation variables, particularly debt to asset and debt to equity exhibit negative aftermath on the financial accomplishment of commercial banks in Nigeria. This suggests that higher levels of debt, especially in relation to equity and assets, are linked to lower returns on both assets and equity. The study further uncovered that short-term debt has a particularly detrimental effect on accomplishment, likely due to its liquidity challenges and potential impact on operational flexibility. The key takeaway from this study is the significance of carefully managing capital formation to achieve optimal firm performance. While debt financing can support growth, excessive reliance on debt, particularly short-term debt, can be harmful. The study provides insights for policymakers, banking executives, and investors on the importance of managing capital structure to enhance the financial performance of banks, especially amidst macroeconomic challenges.
Keywords: Capital formation, firm performance, debt/equity, return-on-asset, return-on-equity
