Firm-Specific Attributes and Financial Performance of Listed Deposit Money Banks in Nigeria

The nature and extent of relationship between firm attributes and bank financial performance have continued to attract the interest of researchers in view of the role that banks play in the economy of every nation. This study assesses the effect of firm specific variables on financial performance of Deposit Money Banks (DMBs) in Nigeria. The study formulates ten (10) hypotheses and applies panel data regression to analyse the extent to which market share, liquidity, credit risk, interest rate spread, leverage, efficiency, operating expenses, deposits, capital management, and bank size affect the financial performance of the banks. The study utilises secondary data extracted from the financial statements of the 13 banks listed on the Nigerian Stock Exchange (NSE) that have their financial statements available over the period 2005 to 2014. Due to absence of cross-sectional effect in the dataset as confirmed by the result of Breusch Pagan Lagrangian Multiplier test and presence of heteroskedasticity, the study uses robust pooled panel regression result for analysis and interpretation. The result of the robust pooled regression model reveals that financial performance of banks in Nigeria is significantly affected by market share, liquidity, interest rate spread, leverage, and operating expenses. The result also reveals that default risk, efficiency, deposits, capital management and size have no significant effect on financial performance of DMBs. In view of this, the study recommends that the Central Bank of Nigeria (CBN) should formulate policies that will motivate banks to increase their market share so that banking structure will be based on market share rather than reduction in the number of players. In addition, the CBN should at least maintain the current liquidity reserves for the banks in view of the strong positive relationship it has with banks’ financial performance. On their part, banks’ management should strive to put deposit to more profitable use in order to increase interest rate spread while shareholders should continue to put in place policies and strategies that will ensure effective management of their capital, size and efficiency for increased profitability.