Effect of Shareholders’ Fund on the Investment and Performance of Deposit Money Banks in Nigeria

Abstract

The bank recapitalization of 2005 brought about a substantial increase in the shareholders’ fund of deposit money banks in Nigeria. This necessitated the study on the effect of shareholders’ fund on the investment and performance of deposit money banks. Ex post facto research design was used and time series data were extracted from the annual reports and accounts of first bank of Nigeria which was the case study. The simple regression data analysis technique which was done with SPSS Version 21 revealed that the coefficient of the independent variable of the models were all positively signed, which implies that an increase in shareholders’ fund will bring about an increase in investment, gross earning and profit after tax of banks. The R² depicts that shareholders’ fund was responsible for 42.5%, 66.4% and 45.7% changes in investment; gross earnings and profit after tax of deposit money banks respectively. Evidence from the study revealed that shareholders’ fund has a significant positive effect on the dependent variables with p-values which were all significant at 5%. The study therefore recommends that directors and board members should advise shareholders to increase their level of equity investment to enable banks have a large shareholders’ fund that it can trade with to generate increasing revenue.

Keywords: Shareholders’ funds, investment, gross earning, profit after tax, deposit money banks