Impact of Market Structure and Firm Specifics on the Profitability of Deposit Money Banks in Nigeria

Abstract

This study examines the impact of market structure and firms specifics on the profitability of deposit money banks in Nigeria. The study formulates five hypotheses and applies longitudinal panel data regression to analyse the relationship between the dependent variable, return on assets and the independent variables, market concentration, market share, capital management, credit size and size of eight (8) sampled banks. Furthermore, the study utilises secondary data extracted from the financial statements of the banks over the period 2005 through to 2012. The result of the robust random effect regression provides evidence that market share, capital, credit size and bank size have significant impact on profitability of banks in Nigeria. It also shows that bank concentration has no significant impact on profitability. Based on the findings, the study recommends among others that Central Bank of Nigeria should deemphasise the policy of mass reduction in the number of banks to achieve concentrated banking environment. Instead, the apex bank 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. On their part, banks’ management and shareholders should continue to raise capital and put in place policies and strategies that will ensure effective management of their capital for increased profitability.