Impact of Financial Strategies on Banking Efficiency in Nigeria
Abstract
This study examines the impact of such financial strategies as income diversification, financial leverage, and liquidity management on the technical efficiency of Nigerian banks between 2010 and 2024. A two-phase methodology was used. In the first phase, efficiency scores were estimated using Data Envelopment Analysis (DEA), applying both raw and bias-corrected measures. In the second phase, Tobit and Simar – Wilson bootstrapped truncated regressions were used to assess the influence of the financial strategies on bank efficiency. This ensures the robustness of results. The findings confirm that liquidity management consistently emerged as the only significant determinant of efficiency across both models. While Tobit results suggested that financial leverage might enhance efficiency, this effect was not supported under the more reliable Simar – Wilson procedure, indicating that leverage is not statistically significant. Income diversification, measured through Trading Income Ratio (TIR) and Fee and Commission Income Ratio (FCIR), was negligible in both
models. Overall, the evidence shows that efficiency in Nigerian banks is driven primarily by effective liquidity management, rather than by capital structure or income diversification.
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