Effect of Financial Risk on Shareholders Asset Value of Listed Deposit Money Banks in Nigeria

Abstract

This study examined the effect of financial risk on shareholders’ asset value of listed deposit money banks in Nigeria from 2011-2020. The specific objectives of the study were to examine the effect of credit risk, the effect of liquidity risk, the effect of leverage risk and the effect of market risk were on the shareholders’ asset value of listed deposit money banks in Nigeria. The study adopted ex-post facto research design while the data were generated from the audited annual financial reports of the twelve (12) listed deposit money banks in Nigeria. The data for the study were analyzed using panel data with ordinary least square regression analysis. The study found that leverage risk had significant effect on Tobin’s Q, Also, liquidity risk had a significant effect on Tobin’s Q, while credit risk and market risk had no significant effect on Tobin’s Q. The study recommends that the CBN should enact a policy that will force banks to utilize their funds by giving out credit and penalize banks that do not meet the threshold. Also, it recommends that the management of the deposit money banks should not aim to have high liquidity because they are being penalized by holding too much cash idle. However, the management of deposit money banks should employ more debt financing since financing with debt has no tax duties accrued to borrowed funds. Also, the management of Deposit Money Banks should bring in debt financing policy with less interest rate since financing with debt has no tax duties accrued as this will enhance their shareholders’ asset values. Finally, management of Deposit Money Banks should increase the cost of collateral as this will reduce the market risk and increase the gross profit of Banks and enhance their shareholders’ asset values.

Keywords:Financial Risk, Credit Risk, Liquidity Risk, Leverage Risk, Market Risk, Shareholders’ Asset Value, Tobin’s Q.

DOI: 10.7176/RJFA/14-14-06

Publication date:July 31^st 2023