Nigerian Journal of Banking and Financial Issues (NJBFI)

THE DETERMINANTS OF CAPITAL STRUCTURE IN THE NIGERIAN BANKING SECTOR

Abstract

This study examines the determinants of capital structure in the Nigerian banking sector, focusing on the Debt-to-Equity Ratio (DETE) as the dependent variable. The aim is to identify the key firm-specific and macroeconomic factors that influence capital structure decisions among Nigerian Deposit Money Banks from 2010 to 2023. Using an ex-post facto research design and panel data from 10 banks, the study employs random effect regression to analyze the impact of variables such as Return on Equity (ROE), bank size, age, liquidity, asset tangibility, interest rates, exchange rates, and inflation. The results indicate that profitability (ROE) and asset tangibility have a positive effect on debt usage, while bank size, age, liquidity, interest rates, and exchange rates negatively influence debt reliance. Inflation has a marginal positive effect. The study highlights the significant role of both internal bank characteristics and macroeconomic factors in shaping capital structure decisions. Based on these findings, the study recommends that regulators refine capital adequacy regulations, stabilize inflation and interest rates, and encourage long-term debt financing to optimize capital structures and maintain financial stability in the banking sector.