Capital Base and Operational Efficiency in Nigerian Deposit Money Banks (Evidence from a Two-Way Fixed Effect Approach)

Abstract

This paper evaluated the influence of capital base of banks on the level of operational efficiency of banks in Nigeria for the period 2004- 2013, with a view to providing information on financial ratio analysis as a measure of banks' operational efficiency and how adequate is the capital adequacy of banks' policy to significantly spur the level of their operational efficiency. Secondary data extracted from annual report and accounts of the fifteen purposively selected quoted banks were employed. Data were analysed using measures of central tendency and two-way fixed effect regression technique. Findings from the analysis showed that debt to total equity (t = -3.17, p< 0.05), core capital ratio (t = 4.65, p< 0.05), bank risk (t = -3.89, p< 0.05) were significant in evaluating the influence of capital adequacy on operational efficiency of the Nigerian money deposit banks. Banks like FCMB (t = 2.63, p< 0.05), Fidelity Bank (t = 2.23, p< 0.05) and WEMA Bank (t = 2.45, p< 0.05), had heterogeneous operational efficiency in the year 2009 (t= 3.06, p< 0.05) and year 2010 (t = 3.63, p< 0.05) due to their intrinsic organizational factors such as managerial competence, technological acceptance and timeliness of decision making, towards sustaining operational efficiency.