CAPITAL STRUCTURE AND SHAREHOLDERS’ VALUE OF DEPOSIT MONEY BANKS IN NIGERIA

The study sets out to empirically x-ray the nature of relationship between firms’ capital structure and consequent effect on shareholders’ value. Following previous studies, the study captures shareholders’ value by profit after tax while the capital structure includes paid up capital, total debt securities, retained earnings and ratio of working capital. Relevant data were sourced from the Nigeria Stock Exchange Fact Books as well as the relevant annual reports of the select quoted deposit money banks. Descriptive statistics tools and econometric methodology of Ordinary Least Squares (OLS) as well as Granger Causality were employed for analysis of data. From the results of both descriptive and econometric analyses, it is clear that capital structure exerts significant influence on the shareholders’ value of the corporate firms. From the results, it is observed that debt capital may not be an appropriate funding source for the operations of deposit money banks as the results consistently indicate a negative and significant relationship with the dependent variable, profit after tax. On the other hand, retained earnings proved to be a better funding source as it showed a positive influence on the earnings banks. This result is further corroborated by the Granger Causality estimates.  Based on the findings, the study has established that earnings retention has a positive and significant relationship with profit after tax and concludes that nature and form of corporate funding impact heavily on the profitability and sustainability of the firm. To this end, the study recommends among others that it is necessary to retain part of the earnings to finance new investment capable of generating more wealth and having positive contributions to the shareholders. Again, it is established from the findings that increase in debt causes the decrease in performance of the companies because debt is expensive source of finance.