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International Journal of Research and Innovation in Social Science (IJRISS) |Volume VI, Issue XII, December 2022|ISSN 2454-6186

Equity Financing and Financial performance of Listed Deposit Money Banks in Nigeria

 Usman Suleiman1, Abiodun Popoola, PhD2, Adabenege Onipe Yahaya, PhD1
1Department of Accounting, Faculty of Management Sciences, Nigerian Defence Academy Kaduna, Nigeria
2Department of Economics, ABU Business School, Ahmadu Bello University, Zaria, Kaduna, Nigeria

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Abstract: The study examined the effect of equity financing on the financial performance of listed deposit money banks in Nigeria. Return on Assets was used as a measure of financial performance while share capital, retained earnings, and other reserves were used as independent variables. Data for the study was obtained from the audited annual reports of the 14 sampled deposit money banks for a period of 10 years covering 2009 to 2018. The study employed robust ordinary least square regression as a tool for analysis and testing of hypotheses based on the Hausman specification test. The result reveals that share capital has a positive and insignificant effect on return on assets while retained earnings and other reserves have a positive and significant effect on return on assets. The study concludes that retained earnings and other reserves improve the financial performance of listed deposit money banks in Nigeria, in line with pecking other theories. The study recommends, among others, that the board of directors should critically and closely monitor the financial structure decisions of the banks by closely ensuring that retained earnings and other reserves are ploughed back on profitable investments.

Keywords: Equity finance, Share Capital, Retained Earnings, Other Reserves, Financial Performance.


The firm’s financial structure consists of debt and equity capital, and the combination of both, which maximises shareholder wealth, is extremely important to management, the board of directors, investors, and so on. Equity finance is available finance for business operation and expansion; thus, it is regarded as the first choice of fund generation due to the flexibility involved, as it does not attract fixed interest payments that are applicable in financial leverage (Daniel Denis & Naveen, 2010). Pandey (1999) asserted that shareholders’ claims on the firm increase when the firms increase their usage of equity finance (ordinary share capital or retained earnings). A typically firm equity finance choice consists of share-capital, share premium, retained earnings, and other reserves (Chadha & Sharma, 2015; Kongmanila & Kimbara, 2007). Equity finance in the form of share capital entitles the holders to ownership claims in the firms with other benefits such as dividends and share appreciation. Ayub (as cited in Achieng, Muturi & Wanjare, 2018) expressed that shareholder will strive to align their interests with those of the management in order to aid management in maximising the crucial value of the firm in the course of investment. Thus, equity finance is viewed as a better solution to business finance for firms, which will aid growth and improve financial performance (Achieng et al., 2018).