Determinants of Capital Structure in Nigerian Banking Sector

Capital is considered as the cornerstone of a bank’s financial strength since it supports bank operations by providing a buffer to absorb unanticipated losses from its activities and, in the event of problems, enabling the bank to continue to operate in a sound and viable manner while the problems are addressed or resolved. The objective of this study is to examine the relationship between the level of leverage ratios with "Size", "Dividend Payout", "Profitability", "Tangibility", "Liquidity", "Growth" and "Tax Charge"; with reference to the capital structure models and theories, and to identify leverage ratios which indicates the most pertinent factor motivating the capital structure choice in Nigerian Banking Industry between 2006 and 2010.
The research work makes use of the econometric procedure in estimating the relationship between banks capital structure and its key determinants. The pooled ordinary Least Square (Pooled OLS) technique was employed in obtaining the numerical estimates of the coefficients in different equations.
The findings of the study revealed that the main determinant factors which contribute to the bank leverage level of the Banking industry in Nigeria between the years 2006 to 2010 are mainly bank size, dividend payout, profitability, tangible assets, growth, business risk and tax charge factors with all of these factors conforming to sign expectations based on theoretical findings. The paper recommended that major players such as bank managers, financial analysts and policy maker will have better understanding about the factors which may influence the capital structure of the Nigerian banking sector and enhance competitiveness in the banking sector.