SIZE – PERFORMANCE NEXUS IN THE NIGERIAN BANKING INDUSTRY: A CAUSAL ANALYSIS
Kayode, Peter Akinyemi & Adaramola, Anthony Olugbenga
Department of Finance
Ekiti State University, Ado-Ekiti, Nigeria
Email: akinyemipeter252@gmail.com
ABSTRACT
This study examined the relationship between bank size and the performance of some selected commercial banks in Nigeria. The study examined the causal effects that exist between size and the performance of these banks using four major bank size variables. The study employed panel data econometric techniques to examine the significance of various size variables on bank performance in Nigeria. The techniques employed include pooled OLS regression, fixed and random effects models as well as Hausman test to examine the effects of four size variables (total assets, deposit volume, number of employees and branch network) on banks’ profitability (profit after tax) in Nigeria. The study further employed the use of Granger causality test to examine if there exist any causal relationship among the variables studied and the direction(s) of such effect/ relationship. The results of the analysis reveal that while total assets and banks’ profitability Granger cause each other, deposit volume Granger causes banks’ profitability whereas, neither branch network nor number of employees Granger causes banks’ profitability in that there exists no directional causality among them. The study recommends that bank managers be more pragmatic in their size management efforts such that size variables exert positive and significant impact on bank performance and a need for more cost effective human resource practices by banks.
Key words: Bank size, Bank Performance, Granger causality, Optimal Bank Size
