MODERATING EFFECT OF LEVERAGE ON THE RELATIONSHIP BETWEEN LIQUIDITY AND PROFITABILITY IN NIGERIAN DEPOSIT MONEY BANKS
Ali Sheriff Taibu ,Garba Yakubu ,Sani Damamisau Mohammed ,Usman Sabo and Abubakar Musa
Volume 4 Issue 1
Abstract
The study investigates the moderating effect of leverage on the relationship between liquidity and profitability in Nigerian Deposit Money Banks. The study collected secondary data from the annual reports and accounts of the sampled DMBs for 10 years 2010-2019. The study employed current ratio, quick ratio and degree of financial leverage as the independent variables while the dependent variable is the return on assets of listed Nigerian DMBs. Collected data is analyzed using descriptive statistics, correlation, and multiple regression aided by Stata software version 17. Results from the first model of the study revealed that the R2 of 0.1354 (13.54%) indicates that the independent variables collectively explained 13.54% of the return on assets. Results from the second model revealed that multiple coefficient of determinant R2 is 0.2080 (20.80%); thus explaining 20.80% of change in Return on Asset. Similarly, the results revealed that liquidity measured by current ratio is negative and significant at 5% level of significance (β-0.1236, P< 0.05). Result on profitability measured by quick ratio (β 2.0303, P< 0.01) and Degree of Financial Leverage (β 2.9623, P< 0.05) were positive and significant at the 1% and 5% significance levels. On the overall, obtained results implies that studied variables contribute significantly to increasing the return on assets of listed Nigerian DMBs. The study therefore recommends that DMBs should maintain a balance between liquid assets and liabilities to maximize liquidity. Similarly, DMBs should adjust leverage ratios to maximize profits while maintaining financial stability by managing financial leverage and liquidity independently. . Keywords: Leverage, Liquidity, Profitability, Deposit Money Banks
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