Re-examining the determinants of bank profitability in Nigeria

Segun Bolarinwa (), Olufemi Bodunde Obembe and Clement Olaniyi

Journal of Economic Studies, 2019, vol. 46, issue 3, 633-651

Abstract: Purpose - The purpose of this paper is to re-examine the determinants of bank profitability in Nigeria. Specifically, the study investigates the effect of managerial cost efficiency on bank profitability. Also, since there exist mixed results and controversies in the literature, in both developed and developing countries, regarding the effect of efficiency on bank profitability, this study employs the standard measure of efficiency. In addition, the work incorporates the role of persistence, which is often neglected in the literature in developing countries. Design/methodology/approach - This study employs system generalized method of moments. Findings - The findings, using the case of Nigeria, show that cost efficiency is a strong determinant of bank profitability in developing countries. In addition, the profitability of banks in Nigeria persists over time; hence, the industry is fairly competitive. Research limitations/implications - The recent policies of banking industry recapitalization meant to increase profitability and stability in Nigeria and other African countries’ banking industry will not be effective if the issue of managerial efficiency is not properly addressed. Practical implications - Improving the banking managerial efficiency will positively reduce bad loans, hence leading to the stability in the banking system. Originality/value - The authors introduce efficiency using standard measure of stochastic frontier analysis for its measurement. Also, this study introduces the role of persistence in the literature in developing countries.

Keywords: Profitability; Nigeria; Banking industry; Stochastic frontier analysis (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (10)

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Persistent link: https://EconPapers.repec.org/RePEc:eme:jespps:jes-09-2017-0246

DOI: 10.1108/JES-09-2017-0246

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