Moderating Effect of Liquidity on the Relationship Between Capital Structure and Profitability: Evidence from Listed Deposit Money Banks in Nigeria
Over the last ten years, banks profitability were not favorable as banks’ financial reports indicated declined profitability, negative retained earnings, net loss and fluctuating net profit which led to the acquisition of some banks by others. The study covered fifteen listed banks as its sample size from 2010-2019. Secondary data were used, sourced from Nigeria Stock Exchange facts book for the period. The methodology used was descriptive research design and random effects estimate was adopted to test the hypotheses. The results revealed that, customers’ savings had a positive and statistically significant effect on return on assets. Loans advances had a negative relationship and insignificant effect on return on assets. Capital investment was positively and insignificant with return on assets and retained earnings showed a negative relationship and statistically significant with return on assets. The overall model results confirmed that, moderating effect of liquidity had significant effect on firms’ profitability of listed deposit money banks in Nigeria. The study recommended that, banks should depend more on customers’ deposits as a means of borrowing on short term basis to finance their businesses and encourage higher rate of undistributed earnings out of profits to serve as internal source of funds of listed deposit money banks in Nigeria as it bears no costs on the firms.