Investment Decisions and Financial Performance of the Nigerian Banking Sector

Abstract

This study investigates the effect of investment decisions on the financial performance of the Nigerian banking sector, focusing on capital budgeting and working capital management as the key dimensions of investment decisions. Return on equity (ROE) and earnings per share (EPS) were used as measures of financial performance. The study adopted an ex-post facto research design, relying on secondary data extracted from the annual reports of selected Nigerian deposit money banks from 2013-2023. Descriptive statistics, correlation matrix, and linear regression analysis were employed to assess the relationships between the variables. The findings revealed that capital budgeting has a positive and significant impact on both ROE and EPS, indicating that efficient long-term investment planning enhances shareholder value. Conversely, working capital management showed a moderate but statistically significant effect on ROE, suggesting that optimal liquidity management contributes to profitability. The study concludes that prudent investment decisions remain pivotal to sustaining the financial health and competitiveness of Nigerian banks. It recommends that bank managers adopt rigorous capital budgeting appraisal techniques and implement policies that ensure an efficient balance between liquidity and profitability.