This study investigates the impact of bank-specific financial soundness indicators on the financial performance of listed deposit money banks (DMBs) in Nigeria, with particular emphasis on the moderating role of regulatory pressure. Using panel data covering 110 firm-year observations, financial performance was proxied by return on equity (ROE), while capital adequacy, liquidity management, asset quality, and management efficiency served as explanatory variables. Regulatory pressure was measured through a composite index derived from compliance ratings and regulatory audits. The analysis employed panel-corrected standard error (PCSE) regression models to address potential heteroskedasticity and autocorrelation concerns. Empirical results reveal that capital adequacy negatively and significantly influences financial performance, whereas liquidity management exerts a positive and significant effect. Asset quality and management efficiency display a weaker yet notable impact. Importantly, regulatory pressure significantly moderates the relationship between capital adequacy and financial performance but does not exert a significant moderating effect on liquidity management, asset quality, or management efficiency. These findings highlight the critical role of context-specific regulatory frameworks in balancing financial stability with profitability. The study recommends a risk-sensitive approach to capital regulation, sustained emphasis on liquidity management, and bank-driven reforms in operational efficiency and credit risk management. Overall, the results contribute to the ongoing discourse on regulatory effectiveness and banking sector resilience in emerging economies.
Adedeji Daniel Gbadebo (Sat,) studied this question.