CAPITAL STRUCTURE AND FINANCIAL PERFORMANCE OF LISTED DEPOSIT MONEY BANKS IN NIGERIA: MODERATING ROLE OF CORPORATE GOVERNANCE

Abstract

Nigerian deposit money banks continue to struggle with achieving optimal financial performance, partly due to ineffective capital structure decisions and weak corporate governance mechanisms. This study investigates the effect of capital structure and corporate governance on the financial performance of listed deposit money banks in Nigeria. Specifically, it examines whether board size moderates the relationship between debt-to-equity ratio and financial performance, measured by Return on Assets (ROA). The study adopts an ex-post facto research design using secondary data from 12 banks with complete financial records between 2015 and 2024. Descriptive statistics, correlation analysis, diagnostic tests, and multiple regression models, estimated through Ordinary Least Squares (OLS) after validating assumptions via the Hausman test, were employed for data analysis. Findings reveal that the debt-to-equity ratio negatively and significantly affects financial performance, while corporate governance, proxied by board size, has a positive and significant effect. Moreover, board size significantly moderates the relationship between capital structure and performance, improving the model's explanatory power. These results support the Trade-Off Theory, suggesting that while high leverage may reduce performance, strong governance can mitigate its negative effects. The study concludes that maintaining a balanced capital structure and enhancing corporate governance structures are essential for improved bank performance. It recommends that banks minimize over-reliance on debt, optimize board composition, and strategically design governance practices to complement financial decisions.