COST OF CAPITAL AND PROFITABILITY OF LISTED COMMERCIAL BANKS IN NIGERAIN EXCHANGE GROUP(NGX)
Abstract
The study investigated the effect of cost of capital (cost of debt and cost of equity) and profitability (return on capital employed) of listed commercial banks in Nigeria. The study sampled seventeen (17) listed commercial banks on the floor of the Nigerian Exchange Group. Data of cost of capital measures (cost of debt and cost equity) and profitability (return on capital employed) were obtained from the annual reports and accounts of the listed commercial banks from 2017-2022. The study employed ex-post facto design. Data obtained were analyzed via descriptive statistics (mean, median, standard deviation, minimum, and maximum values, skewness, and kurtosis, Pearson correlation matrix); post-estimation statistics (variance inflation factor, heteroscedasticity, Ramsey RESET, Cameron and Trivedi’s decomposition of IM-test) and inferential statistics (random-effects LR panel data regression). The random-effects LR panel data regression revealed that there is significant relationship between cost of debt and cost of equity and return on capital employed of the listed commercial banks firms in Nigeria. The study recommended that management of commercial banks need to ensure an adequate use or level of equity in financing their operations. More so, there is the need for management of commercial banks to strengthen debt-mix in the formation of their capital structure. The study contributes to knowledge by using Peckings Order theory in explaining the relationship between costs of capital and profitability of listed commercial banks in Nigeria and filled the gap in the accounting literature on how costs of capital influence the level of profitability of commercial banks in Nigeria.
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Published in AFRICAN JOURNAL OF ACCOUNTING, FINANCE & MARKETING
ISSN: 2805 - 4253
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