Overhead Costs and Financial Performance of Selected Deposit Money Banks in Nigeria

Abstract

The study empirically evaluated the sensitivity of financial performance to overhead cost of deposit money banks in Nigeria. It adopted the ex post facto research design as secondary data were used. It spanned a 12 year period (i.e. 2009 to 2020). Specifically, it attempted to ascertain the extent and nature of the relation between the predictors (audit fees, director's remunerations and salaries and wages) and return on equity. Diagnostic tests carried out indicated presence of unit roots and heteroskedasticity. Panel least squares regression analysis (Random Effects GLS Regression) showcased the statistical relevance of these associations. While audit fees and natural logarithm of total assets positively exerted very strong and insignificant impacts on return on equity, salaries and wages and director's remunerations negatively exerted very strong and insignificant impacts on return on equity. Financial firms' profits are highly influenced by these overhead expenses as they mimic heavy personnel and other costs culture of governments locally. Various components of overhead costs including audit fees, director's remunerations and salaries and wages incurred in the banking system should be given due priority so as to achieve the desired financial performance.