Assessing the Effect of Capital Adequacy Risk and Liquidity Risk Management on Firm Value of Deposit Money Banks in Nigeria

Abstract:

The study examined the effect of capital adequacy risk and liquidity risk on firm value of listed deposit banks in Nigeria. The study used an ex-post facto research design. The population of the study consists of all the deposit money banks listed in Nigeria Stock Exchange. The study used secondary sources of data from Central Bank of Nigeria as well as from annual reports and financial statement of accounts of deposit money banks under investigation from 2010-2019. Preliminary tests were conducted based on data collected. Partial Least Squares Structural Equation Modeling was used to test the postulated hypotheses at 5% level of significance. The findings revealed that capital adequacy risk had a significant and positive effect on firm value of deposit money banks in Nigeria. Liquidity risk had a positive but no significant effect on firm value of deposit money banks in Nigeria. The study recommends that banks should continue to review their capital adequacy ratios in order to sustain and meet up with current economic realities as stipulated by regulatory authorities. They should incorporate proper liquidity management strategies like regular conduct of financial stress test, development of formal contingency funding plan in order to surmount liquidity shortfalls during crisis.