Notes

This study is highly relevant to the Nigerian banking industry because capital structure decisions directly influence profitability in a volatile environment marked by high interest rates, inflation, and exchange rate instability. The finding that debt—especially long-term borrowing—reduces profitability reflects Nigeria’s high cost of funds and the risks associated with heavy leverage, including higher interest expenses and exposure to currency shocks. In contrast, the positive impact of equity financing supports the Central Bank of Nigeria’s recapitalization drive and Basel III emphasis on strong capital buffers, as equity enhances resilience, improves capital adequacy, and stabilizes earnings. These insights guide bank executives to prioritize equity and retained earnings over costly debt, helping them manage risk and improve financial performance. Investors can also use the findings to identify stronger, less leveraged banks, while policymakers gain evidence supporting stricter leverage controls and capital adequacy requirements. Overall, the study provides practical guidance for improving profitability, strengthening financial stability, and enhancing the long-term sustainability of Nigerian Deposit Money Banks.