A Panel Analysis of the Responsiveness of Commercial Banks’ Profitability to its Capital Structure in the Nigerian Banking Sector

The broad objective of this research is to evaluate the responsiveness of commercial bank's profitability to its capital structure in the Nigerian banking sector, 2008-2017. Ex-post-facto research design was adopted. The traditional panel least square regression (PLSR) was used in the model. The study applied panel data models on annual data of the commercial banks within the scope. Panel data estimation allows for the control of individual-specific effects usually unobservable which may be correlated with other explanatory variables included in the specification of the relationship between dependent and explanatory variables using Haussmann test. Result from the Haussmann test statistics reveals that Shareholders' fund had a negative and significant impact on profitability of commercial banks in Nigeria. Debt/total asset had a positive and significant impact on profitability of commercial banks in Nigeria. Financial leverage had a positive and significant impact on profitability of commercial banks in Nigeria. The study recommended that commercial banks should imbibe trade off capital structure theory in financing its operations by either substituting gearing for shareholders' fund or shareholders' fund for gearing until an optimal and desired capital structure is arrived at.