Capital Structure and The Profitability Listed Deposit Money Banks in Nigeria

This study examines the effect of capital structure on the profitability of listed Deposit Money Banks (DMBs) in Nigeria, using empirical evidence from 2014 to 2023. The study focuses on five capital structure variables Book Value of Equity, Financial Leverage Ratio, Debt-to-Capital Ratio, Interest Coverage Ratio and Capital Gearing Ratio and assesses their effect on profitability proxied by Return on Assets (ROA) and Return on Equity (ROE). Guided by theories such as the Pecking Order, Trade-off and Agency Theory, the study employs panel data methodology, fixed-effects regression models, and diagnostic tests for robustness using data from 15 purposively selected DMBs. Findings reveal that Financial Leverage and Capital Gearing negatively affect profitability, while Book Value of Equity and Interest Coverage Ratio have significant positive relationships with profitability. Debt-to-Capital Ratio shows a weak but consistent effect. The results imply that capital structure management remains a vital driver of bank performance in Nigeria, with excessive leverage impairing profitability. The study recommends prudent debt management, capital efficiency strategies and regulatory oversight that balance growth with stability. While the study is robust in data and methodology, it is limited to DMBs and may not capture sectoral variations in capital structure effects. Future research should explore the moderating roles of macroeconomic variables and consider cross-sectoral analyses. Acknowledging the strategic importance of capital optimization, this study offers valuable insights for policymakers, regulators and bank executives navigating financial performance challenges in emerging economies like Nigeria.