Influence of Internal Factors on the Financial Performances: An Empirical Study on Nigerian Deposit Money Banks

Abstract

This study examines the influence of internal factors on financial performance in Nigerian deposit money banks by using panel data of banks over the period 2009 to 2019. Since the data is secondary in nature, the quantitative approach to research was considered. Besides, the fixed effect model was used. The fixed effect model is preferred to the random effect model based on the Housman specification test. Under this study, internal and factors were examined. The internal factors used in this study include capital structure; Income Diversification, operating cost and bank size whereas, ROA and ROCE were used as the financial performance measure. Based on the regression result, all bank specific variables except bank size affect performance of the bank significantly but negatively. While based on correlation analysis, Bank size was positively correlated with ROCE. These clearly shows that, as the bank size increases, ROCE also moves on the same direction. On the other hand, the income diversification, capital structure and operating cost were negatively correlated with ROCE. Also, as the income diversification, capital structure and operating cost increases, ROCE moves in opposite direction. Moreover, the capital structure and the operating cost negatively correlated with ROA. This indicates that as capital structure increases, ROA moves to the opposite direction. On the other hand, income diversification and bank size were positively correlated with ROA. Based on the empirical findings, both capital structure and operating cost negatively and significantly affect performance measured by ROA and ROCE.