Effects of Debt Finance on Financial Performance of Listed Deposit Money Banks in Nigeria

Indian Journal of Economics and Finance (IJEF) ISSN: 2582-9378 (Online), Volume-5 Issue-2, November 2025 45 Published By: Lattice Science Publication (LSP) © Copyright: All rights reserved. Retrieval Number:100.1/ijef.B262805021125 DOI:10.54105/ijef.B2628.05021125 Journal Website: www.ijef.latticescipub.com Effects of Debt Finance on Financial Performance of Listed Deposit Money Banks in Nigeria Jeremiah Ogorry Ogbu, Seini Odudu Abu, Emmanuel Apedzan Kighir Abstract: This study was inspired by the persistent poor performance of Nigerian Deposit Money Institutions, which in turn affects the return on investment available to capital providers. It concentrated on debt financing and return on investment for businesses that transfer money from economic sectors with surpluses to those with deficits. The study examines how both total debt-to-total assets and long-term debt-to-total assets influence the return on assets of Nigerian listed deposit money banks. The audited financial accounts of eleven (11) of the fourteen (14) DMBs that make up the study population over ten years (2014– 2023) served as the secondary data for the study. The Trade-Off Theory serves as the foundation for the study, which used a correlational research approach. The panel data used in the study were analysed using STATA 14, and several regression models were applied. The results from the Random Effect Regression model for the 110 observations were examined. The results showed that whereas long-term debt to total assets (LTDTA) has a considerable and positive impact on ROA, total debt to total assets (TDTA) has an adverse but significant effect. The study's findings showed that debt financing has a 26% impact on the ROA of listed DMBs in Nigeria, with long-term debt accounting for the remaining 74%. The study recommends that DMBs should use debt more prudently to prevent debt traps that could jeopardise their ability to continue operating in the event of default. Keywords: Debt Finance, Long-Term Debt, Returns on Assets, Total Debt to Total Assets, Trade-off Theory Abbreviations: ROA: Return On Assets ROE: Return On Equity NIM: Net Interest Margin NPLs: Non-Performing Loans DMBs: Deposit Money Banks FCMB: First City Monument Bank UBA: United Bank for Africa FE: Fixed-Effects RE: Random-Effects LTD: Long-Term Debt LTDTA: Long-Term Debt to Total Assets Manuscript received on 16 June 2025 | First Revised Manuscript received on 28 July 2025 | Second Revised Manuscript received on 22 October 2025 | Manuscript Accepted on 15 November 2025 | Manuscript published on 30 November 2025. *Correspondence Author(s) Jeremiah Ogorry Ogbu, Department of Accounting Education, School of Secondary Education (Business), Federal College of Education (Technical), Bichi, Kano State, Nigeria. Email ID: [email protected] Dr. Seini Odudu Abu*, Department of Accounting, Faculty of Management Sciences, Federal University Dutsinma, Katsina State, Nigeria. Email ID: [email protected], ORCID ID: 0000-0001-6087-0882 Prof. Emmanuel Apedzan Kighir, Department of Accounting, Faculty of Management Sciences, Federal University Dutsinma, Katsina State, Nigeria. Email ID: Apedzankighir200[email protected]om © The Authors. Published by Lattice Science Publication (LSP). This is an open access article under the CC-BY-NC-ND license http://creativecommons.org/licenses/by-nc-nd/4.0/ I. INTRODUCTION Financial performance is a crucial measure of a firm's success, indicating its ability to generate profit and sustain operations efficiently. In the banking sector, economic performance is often evaluated using key metrics, including return on assets (ROA), return on equity (ROE), and net interest margin (NIM) [1]. However, a bank’s financial performance is influenced by several factors, including capital structure, asset quality, operational efficiency, and macroeconomic conditions [21]. Among these factors, the ratio of total debt to total assets and the amount of long-term debt play a significant role in shaping financial performance. Financial performance is a snapshot of the company's economic health and the effectiveness of its management, providing insight into whether its operations and earnings are likely to expand in the future and into the outlook for its stock. It also helps understand companies' and banks' overall financial positions and forecast their future performance. Economic performance appraisals offer helpful information for management decisions regarding the effectiveness of banks' operations and the efficient use of equity [2]. Banks, as financial intermediaries, rely on both equity and debt to fund their operations. Debt financing, particularly long-term debt, enables banks to expand their asset base and enhance lending capacity. However, excessive reliance on debt can lead to financial distress, increased interest expenses, and reduced profitability. In the Nigerian banking sector, the composition of debt, especially long-term liabilities, has become a subject of concern due to its implications for financial performance [29]. The total debt-to-total assets ratio is a measure that reflects a bank's poor financial performance. A high ratio suggests heavy reliance on debt financing, which can amplify returns during favourable economic conditions but may also increase vulnerability during financial downturns [4]. Long-term debt, on the other hand, enables banks to finance capital-intensive investments and expansion strategies; however, its cost in terms of interest payments can impact profitability [16] if not correctly managed [4]. Excessive reliance on total debt has been a significant factor in the decline in the financial performance of Nigerian banks. High debt levels increase interest expenses, reducing profitability and increasing the risk of non-performing loans (NPLs). Many banks have collapsed due to their inability to manage debt effectively. For example, Intercontinental Bank faced severe financial distress due to excessive leverage, which ultimately led to its acquisition by Access Bank in 2011. Similarly, Union Bank of Nigeria had to undergo recapitalization due to its high debt burden following the Effects of Debt Finance on Financial Performance of Listed Deposit Money Banks in Nigeria 46 Published By: Lattice Science Publication (LSP) © Copyright: All rights reserved. Retrieval Number:100.1/ijef.B262805021125 DOI:10.54105/ijef.B2628.05021125 Journal Website: www.ijef.latticescipub.com 2005 banking consolidation exercise [12]. Despite these concerns, some studies suggest that moderate debt levels can enhance bank efficiency and return on assets (6; 30). Following the 2009 banking sector reforms, which emphasised recapitalisation and performance-based supervision, many banks have adjusted their capital structures to enhance financial performance [9]. Despite these measures, concerns persist regarding the impact of debt financing on bank performance. Despite the significance of debt financing in banking operations, there is no consensus on the optimal level of debt that maximizes financial performance. Some studies argue that a higher total debt-to-total assets ratio enhances financial performance by providing tax benefits and increasing returns on equity [5]. Others suggest that excessive debt, particularly long-term liabilities, leads to economic distress and declining financial performance [14]. The Nigerian banking sector has faced numerous challenges in recent years, including liquidity crises, high non-performing loans, and macroeconomic volatility, raising concerns about the impact of debt financing on bank performance. Previous research on capital structure and bank performance in Nigeria has focused primarily on broad leverage ratios without adequately distinguishing between total debt and long-term debt [29]. Given the changing regulatory landscape, economic fluctuations, and rising interest rates in Nigeria, there is a need for an updated empirical analysis of how TD/TA and LTD affect the financial performance of listed Deposit Money Banks. This study aims to fill this gap by providing a comprehensive assessment of the impact of total debt-to-total assets and longterm debt measures on the financial performance proxy, return on assets (ROA). From the studies on the relationship between total debt to total assets and financial performance, which have been out in the past, some by [11] found that total debt to total assets hurt financial performance. Similarly, [22] assessed the relationship between total debt to total assets and financial performance in Nigeria, the results of the studies found both negative and no association between economic performance and total debt to total assets [15]. examined the influence of long-term debt on financial performance and found no significant impact. Therefore, there is conflicting evidence about the optimizing capital structure for enhanced financial performance in Nigerian deposit money banks. Thus, the primary objective of this study is to examine the effects of total debt to total assets and long-term debt on the financial performance of listed deposit money banks in Nigeria, to provide a comprehensive assessment of the banking sector. The study provides answers to the following questions: (i) How does the total debt to total assets affect the ROA of Nigerian deposit money banks? (ii) How does long-term debt affect the ROA of the Nigerian deposit money banks? (iii) How does debt financing influence ROA? The objective of the study is to determine the effects of total debt to total assets, long-term debt and the extent to which debt financing influences the ROA of listed deposit money banks in Nigeria from 2014 to 2023 [7]. Hence, the following hypothesis was formulated in line with the objectives of the study; H01: Total debt to total assets has no significant effect on the ROA of listed deposit money banks in Nigeria. H02: Long-term debt does not have a significant effect on the ROA of listed deposit money banks in Nigeria. II. LITERATURE REVIEW The study reviews the existing literature on the effects of total debt to total assets and long-term debt on the financial performance of listed deposit money banks in Nigeria. It aims to provide a comprehensive assessment of the banking sector, including relevant theories and an empirical review. A. Concept of Financial Performance Financial performance is a crucial measure of an organisation's ability to effectively utilise its assets to generate revenue and manage its financial obligations. It reflects the overall health of the business, providing insights into its operational efficiency, profitability, and growth prospects. In the context of the study on the relationship between capital structure and financial performance of listed deposit money banks in Nigeria, understanding financial performance is pivotal. According to [28], financial performance enables stakeholders to understand the economic viability of an organisation, thereby guiding investment and management decisions. The study used ROA, which provides insight into how efficiently banks use their assets to improve financial performance. The choice of ROA helps managers, stakeholders, investors, analysts, and regulators assess the bank's economic performance relative to its asset base. B. Concept of Total Debt to Total Assets Total debt to total assets is a proxy for assessing the capital structure of a Deposit Money Bank (DMB). It measures the proportion of a bank's total assets that are financed by debt. The total debt-to-total assets ratio is calculated by dividing the bank's total debt by its total assets. A firm with a low total debt-to-total assets ratio is considered financially stable, as it relies less on external borrowing. Conversely, a high ratio may indicate potential liquidity challenges and higher interest obligations, which can negatively impact financial performance [10]. C. Concept of Long-Term Debt Long-term debt refers to financial obligations that extend beyond one year and are typically used by businesses and financial institutions to finance capital-intensive projects, acquisitions, or expansion activities. It includes instruments such as bonds, debentures, bank loans, and lease obligations that require periodic interest payments and eventual principal repayment over an extended period [10]. In the banking sector, long-term debt plays a crucial role in shaping a bank's capital structure, influencing financial performance, risk exposure, and investment capacity. According to [25], long-term debt allows firms, including banks, to leverage external funding for growth while maintaining operational liquidity. However, excessive reliance on long-term debt can lead to increased financial risk, higher interest expenses, and potential insolvency issues if not managed effectively. Long-term debt is often preferred for funding strategic investments, such as Indian Journal of Economics and Finance (IJEF) ISSN: 2582-9378 (Online), Volume-5 Issue-2, November 2025 47 Published By: Lattice Science Publication (LSP) © Copyright: All rights reserved. Retrieval Number:100.1/ijef.B262805021125 DOI:10.54105/ijef.B2628.05021125 Journal Website: www.ijef.latticescipub.com infrastructure development, technology upgrades, and loan portfolio expansion in banks [13]. Its cost and accessibility depend on several factors, including interest rates, credit ratings, regulatory policies, and macroeconomic conditions. High levels of long-term debt can enhance financial performance if the returns on investment exceed the cost of debt, but they can also pose financial distress if mismanaged [20]. D. Theoretical Review The theoretical review provides various perspectives on how total debt to total assets and long-term debt affect financial performance. While the trade-off Theory suggests an optimal balance between debt and equity, the peckingorder theory emphasises a preference for internal financing. The agency theory emphasises the role of debt in mitigating managerial inefficiencies, whereas the M&M theory suggests that market imperfections influence capital structure decisions. These theories provide a solid foundation for analyzing the impact of debt on the financial performance of listed Deposit Money Banks in Nigeria. The study examines the effects of total debt to total assets and long-term debt on the financial performance of listed deposit money banks (DMBs) in Nigeria. To provide a strong theoretical foundation, the trade-off theory and the pecking order theory have been adopted. These theories effectively explain the relationship between debt financing and financial performance in the banking sector. E. Review of Empirical Studies This section reviews empirical studies on the effects of total debt and long-term debt on the financial performance of listed Deposit Money Banks (DMBs) in Nigeria, identifying findings, methodological approaches, and research gaps. F. Total Debt to Total Assets and Financial Performance Several empirical studies have examined the impact of total debt to total assets on financial performance across various industries and regions, yielding mixed results. Additionally, [3] analysed Palestinian banks from 2010 to 2019 using panel data regression under the Trade-Off Theory, finding a negative relationship between total debt and ROA due to financial distress and interest expenses. Similarly, [23] examined 15 Tanzanian commercial banks between 2012 and 2022 using a fixed-effects regression model and found that high debt ratios significantly reduced profitability. In contrast, [8] studied 21 Nigerian deposit money banks from 2000 to 2009 using multiple regression analysis under the Pecking Order Theory and reported a positive relationship between total debt and financial performance, suggesting that moderate leverage enhances profitability [31]. in their analysis of 18 listed banks in Ghana from 2011 to 2020 using OLS regression under the Signaling Theory, they found that moderate leverage improved profitability, though excessive debt increased financial instability. Similarly, [30] examined 20 South African banks from 2013 to 2021 using the Generalized Method of Moments (GMM) within the Market Timing Theory framework and found that moderate debt improved ROA. Still, excessive leverage reduced profitability due to heightened risk exposure. Furthermore, [8] investigated 14 listed deposit money banks in Nigeria from 2010 to 2020 using dynamic panel regression based on the Agency Cost Theory and found a negative but insignificant effect of total debt on financial performance. Beyond the banking sector, [14] analysed 12 food and beverage manufacturing companies in Indonesia from 2017 to 2019 using an explanatory research design and PLS regression, finding a significant effect of total debt to total assets on financial performance. However, the short study period was noted to limit long-term insights [27]. Studied 150 pharmaceutical companies in Bangladesh from 2013 to 2022 using a panel regression model under the Pecking Order Theory, incorporating 13 financial variables, and found that total debt to total assets significantly influenced financial performance, particularly EPS, due to the industry's high R&D costs. Similarly, [24] examined 263 non-financial companies listed on the Tokyo Stock Exchange from 2001 to 2021, using GMM to analyse six debt-related variables, and concluded that higher debt levels positively influenced firm profitability. However, [28] studied 61 deposit-taking SACCOs in Kenya from 2016 to 2020 using a cross-sectional research design and panel regression under the Pecking Order Theory, finding that higher debt levels reduced profitability due to financial burdens. These studies collectively suggest that industry-specific factors, economic conditions, and regulatory frameworks influence the relationship between total debt and total assets, as well as financial performance. While some research supports moderate debt as a driver of profitability, others provide the risks of excessive influence, reinforcing the need for firms to maintain a balanced capital structure. Future research should extend study periods and cover a broader range of industry sectors to gain a more comprehensive understanding of the long-term impact of debt financing on financial performance. G. Long-Term Debt and Financial Performance Several studies have investigated the impact of long-term debt on financial performance across various industries and regions [6]. Analyzed Nigerian banks, using a sample of 12 deposit money banks from 2008 to 2018, employing the trade-off theory and a panel data regression model. They found that long-term debt hurts financial performance, as excessive debt increases financial costs and reduces profitability [3]. Investigated Palestinian banks from 2010 to 2019, applying the agency cost theory and fixed-effect regression, and revealed that long-term debt financing leads to lower returns due to increased financial risks and agency conflicts [30]. Studied 15 South African commercial banks between 2012 and 2021, adopting the pecking order theory and a dynamic panel regression model, concluding that longterm debt negatively impacts return on equity and net interest margin, reinforcing the need for an optimal capital structure [23]. Assessed Tanzanian commercial banks from 2011 to 2020 using an explanatory research design and the trade-off theory, finding a negative but insignificant effect of long-term debt on financial performance, indicating that moderate debt levels may not severely harm profitability [17]. Examined Fifty listed Asian financial institutions from 2005 to 2018 were analysed using the market timing theory and a panel econometric model, which reported that higher long-term debt levels are associated with lower financial Effects of Debt Finance on Financial Performance of Listed Deposit Money Banks in Nigeria 48 Published By: Lattice Science Publication (LSP) © Copyright: All rights reserved. Retrieval Number:100.1/ijef.B262805021125 DOI:10.54105/ijef.B2628.05021125 Journal Website: www.ijef.latticescipub.com performance due to increased interest obligations [19]. Evaluated commercial airlines in Kenya from 2018 to 2022, using the pecking order theory and a cross-sectional research design, and found that long-term debt financing had a negative and statistically significant effect on profitability, measured by net profit margin [21]. Analyzed five Nigerian oil and gas companies from 2011 to 2020 using an ex post facto research design and reported a negative significant influence of long-term debt on return on assets. Conversely, [26] examined 45 non-financial enterprises in Kenya from 2008 to 2017 using an explanatory research design and found that long-term debt had a positive impact on financial growth, contributing to variations in earnings per share and market capitalisation. Generally, empirical studies indicate that longterm debt harms financial performance due to higher financial costs and risks; however, some argue that a well-managed long-term debt strategy can foster growth. Firms are advised to enhance their debt levels, striking a balance between financial performance and minimising excessive debt exposure. III. METHODOLOGY The study adopted correlation research designs. The study aims to examine the effects of total debt to total assets and long-term debt on the financial performance of listed deposit money banks in Nigeria, using secondary data. The population of the study is the fourteen [14] listed deposit money banks on the Nigerian Exchange Group as at 31st December, 2024 [18] namely: Unity Bank incorporated 1987, Access Bank listed 2022, Fidelity Bank listed 2005, First Bank listed 2012, First City Monument Bank (FCMB) listed 2013, Guaranty Trust Bank listed 2021, Stanbic IBTC Bank listed 2012, Union Bank listed 1979, United Bank for Africa (UBA) listed 1970, Wema Bank incorporated 1945, Zenith Bank listed 2004. Jaiz Bank was incorporated in 2003, Eco Bank was listed in 2006, and Sterling Bank was listed in 2023. Jaiz Bank (incorporated in 2003), Eco Bank (listed in 2006), and Sterling Bank (listed in 2023) do not have complete data for the period under study and were therefore eliminated. The remaining 11(eleven) deposit money banks thus constituted the sample of the study. The data were collected from secondary sources, specifically the published annual reports of deposit money banks on the Nigerian Exchange Group. A. Model Specification and Justification of the Method Adopted This study aims to examine the effects of total debt to total assets and long-term debt on the financial performance of listed deposit money banks in Nigeria. To achieve this, the study employed a multiple regression model in which economic performance indicators served as the dependent variables and capital structure components as the independent variables. The model adopted is specified as follows: ROAi= β0 + β1TDTAi + β2LTDi + β3FMSi + β4FMAi + εi The dependent variable is a function of a constant, explanatory variable, control variable and error term of the sampled DMBs Where: ▪ ROAi represents the financial performance indicator for DMBs (return on assets). ▪ TDTA, LTD, represent the debt financing proxies for DMBsi (total debt to total assets and long-term debt, respectively). ▪ β0 = constant. ▪ β1 to β4 are the coefficients of the regression for explanatory variables of DMBsi, while εi is the error term of DMBsi, capturing other explanatory variables not included in the model. IV. RESULTS AND DISCUSSION This subsection considered the data presentation, analysis, interpretation, and discussion of the study's results. The results from the descriptive statistics, panel multiple correlations, and regression are presented and discussed for data on total debt to total assets and long-term debt about the financial Performance of listed Deposit Money Banks in Nigeria from 2014 to 2023. The data were collected from the audited financial reports of the Banks under study for the year 2024. This part of the research work is necessary to test the validity of the hypotheses stated in the survey. A. Descriptive Statistics The descriptive statistics in this study provide a foundational overview of the dataset, summarising the variables used to analyse the effects of total debt to total assets and long-term debt on the financial Performance of listed Deposit Money Banks in Nigeria. This analysis includes measurements of central tendency and variability, such as the mean, standard deviation, minimum, and maximum values for each variable. Table 2 presents descriptive statistics for the study variables, using mean, standard deviation, minimum, and maximum values. Table-I: Descriptive Statistics Variable Obs Mean Std. Dev. Min Max ROA 110 .3643591 1.210175 .003 0.2691 TDTA 110 .3552664 .2991044 .0012 .902 LTD 110 .21064 .2112434 .0008 .6878 FMS 110 7820669 13548 48774 94489 FMA 110 30.54545 14.23501 12 54 Source: Author Computation using STATA14 Output 2024. The dataset above contains 110 observations for 11 banks listed on the Nigerian Exchange Group over the research period. The descriptive statistics provide an overview of the variables used in the study. The return on assets has a mean of 0.3644 and a standard deviation of 1.2102, suggesting inconsistent financial performance across observations. The minimum and maximum values range from 0.003 to 0.2691, showing a relatively low spread. The total debt-to-total assets ratio has a mean of 0.3553 and a standard deviation of 0.2991, with values ranging from 0.0012 to 0.902. This indicates that some firms rely heavily on debt, while others do not. Longterm debt has an average of 0.2106 and a standard deviation of 0.2112, indicating a moderate distribution, with values ranging from 0.0008 to 0.6878. Firm size, measured in financial terms, has a mean of $7,820,669, a standard deviation of $13,548, and a range of $48,774 to $94,489, indicating considerable variation. Finally, the average Indian Journal of Economics and Finance (IJEF) ISSN: 2582-9378 (Online), Volume-5 Issue-2, November 2025 49 Published By: Lattice Science Publication (LSP) © Copyright: All rights reserved. Retrieval Number:100.1/ijef.B262805021125 DOI:10.54105/ijef.B2628.05021125 Journal Website: www.ijef.latticescipub.com firm age is 30.55 years, with a standard deviation of 14.24 and a range of 12 to 54 years, indicating that the firms in the sample have varying levels of experience in the banking sector. These statistics provide a breakdown of the diversity in debt financing, firm size, and understanding of the firms analysed in the study. B. Correlation Analysis The correlation matrix in Table 3 shows the nature of the relationships among the dependent and independent variables (TDTA, LTD, FMS, FMA, and ROA) in the study, as well as among the independent variables. The person’s correlation analysis was performed to measure the direction and strength of the relationships among variables. The results are shown in Table 3. Table-II: Correlation Matrix of the Sample Observations, Star (0.05) Sig ROA TDTA LTD FMS FMA ROA 1.0000 TDTA 0.2141 1.0000 LTD 0.1917 0.6511 1.0000 FMS -0.3035 -0.1643 0.3582 1.0000 FMA 0.3228 0.3610 0.0096 -0.1424 1.0000 Source: Correlation Matrix Results Using STATA The correlation analysis presented in Table 3 provides insights into the relationships between total debt to total assets and long-term debt and the financial performance of listed deposit money banks in Nigeria. The variables analysed include TDTA and LTD, along with control variables such as FMS and FMA. These correlations help to understand how total debt to total assets and long-term debt are associated with the financial performance of listed deposit money banks. From Table 3, ROA shows a strong, positive correlation with FMA (r = 0.3228, P < 0.1), indicating that as ROA increases, FMA also increases. The ROA also exhibits a strong negative relationship with FMS (r = -0.3035, p < 0.1), indicating that as the ROA decreases, FMS will decrease. The ROA also shows a strong, positive relationship with TDTA (r = 0.2141, p < 0.1). LTD has a positive and strong relationship with ROA (r = 0.1917), indicating that an increase in ROA is associated with an increase in LTD, and vice versa. Table-III: Heteroskedasticity Test and Hausman Fixed Random Effect Test Statistic P. value Hettest: Chi2 (1) 230.26 0.0000 Obs* R-square 0.3437 0.0000 Hausman: Chi2 (0) Prob > chi2 0.050 Random Effect: Chi2 0.05 0.0000 Source: Result output from STATA The Hausman test is used to determine whether the fixedeffects (FE) or random-effects (RE) model is more appropriate for the given data. The test essentially assesses if the unique errors (u_i) are correlated with the regression in the model. A significant result indicates that the RE estimates are biased and that the FE model should be preferred. The test statistics show that the Chi-squared Test Statistic is 230.26, while the p-value: Prob > chi2 = 0.0000. Since the pvalue (0.0000) is significantly less than the conventional alpha level of 0.05, we reject the null hypothesis. This shows that the differences in coefficients between the fixed and random-effects models are systematic. As a result, we conclude that the random-effects model is not appropriate for this dataset because it produces biased estimates due to the correlation between the regression and the unique errors (u_i). The Hausman test suggests that the Random-effects model should be preferred over the Fixed-effects model for analyzing the relationship between ROA and the independent variables (TDTA, LTD, FMS and FMA). This highlights the importance of accounting for unobserved heterogeneity that may influence financial performance measures across different banks. Table-IV: Regression Results ROA Coef. Std. Err. z P>|z [95% Conf. Interval] TDTA -4.259888 .614508 -6.93 0.000 -5.464302 -3.055475 LTD 6.849145 .6771247 10.12 0.000 5.522005 8.176285 FMS -.5302279 .1840091 -2.88 0.004 -.8908792 -.1695766 FMA .0515971 .0205487 2.51 0.012 .0113224 .0918717 _CONS 3.005731 1.640885 1.83 0.067 -.2103448 6.221807 R2 Within = 0.5349 min = 10 Between = 0.0846 Avg = 10.0 Overall = 0.2572 Sources: Generated by Researcher (Stata output) 2024. The results from the random effect regression provide insights into the relationship between Return on Assets (ROA) and the independent variables (TDTA, LTD, FMS, and FMA). The Wald chi-squared test indicates that the whole model is significant, suggesting that at least one independent variable is significantly related to ROA. A total debt to total assets coefficient of -4.26 indicates that an increase in Total debt to total assets is related to a decrease in ROA. The p-value (0.000) shows this effect is significant at the 5% level. The Long-term Debt (LTD) coefficient of 6.85 indicates that a one-unit increase in the Long-term Debt ratio is associated with an increase in ROA. The p-value (0.000) signifies a significant positive relationship. The FMS (Firm Size) coefficient of -0.53 indicates a negative relationship with ROA: an increase in firm size is associated with a decrease in ROA of approximately 0.019. The result is significant (p = 0.0), while the FMA (Firm Age) coefficient of 0.05 shows a substantial effect at a p-value of 0.012, indicating that ROA increases slightly by 0.002 per unit increase in firm age. C. Test of Hypothesis H01: The coefficient of -4.26 for the total debt to total assets ratio indicates that a decrease in Total debt to total assets is related to the decline in ROA, and the p-value of 0.000 shows Effects of Debt Finance on Financial Performance of Listed Deposit Money Banks in Nigeria 50 Published By: Lattice Science Publication (LSP) © Copyright: All rights reserved. Retrieval Number:100.1/ijef.B262805021125 DOI:10.54105/ijef.B2628.05021125 Journal Website: www.ijef.latticescipub.com that this effect is significant at the 5% level. TDTA has a considerable positive impact on ROA. H02: The result found that long-term debt hurt financial performance. The Long-term Debt (LTD) coefficient value of 6.85 indicates that an increase in Long-term Debt is associated with a rise in ROA, with a p-value of 0.000. D. Finding The study's findings reveal that the total debt-to-total assets ratio has a negative but statistically significant effect on return on assets, indicating that an increase in total debt is associated with a decline in financial performance. On the other hand, long-term debt to total assets has a significant positive effect on return on assets, signifying that a wellstructured long-term debt strategy enhances financial performance. V. CONCLUSION AND RECOMMENDATIONS The study concludes that debt financing has a significant impact on the financial performance of listed deposit money banks in Nigeria. The findings show that total debt to total assets has a significant, adverse effect on return on assets, suggesting that excessive reliance on debt reduces profitability due to higher interest expenses and financial distress. On the other hand, long-term debt to total assets has a significant, positive effect on return on assets, suggesting that long-term financing supports business expansion and enhances profitability when properly managed. The study finds that debt financing accounts for 26% of the variation in financial performance, while other factors account for the remaining 74%. This highlights the importance of having the best capital structure in striking a balance between debt and economic performance. A. Recommendations The study recommends that deposit money banks in Nigeria exercise caution when utilising debt financing to avoid the risk of falling into a debt trap that could affect their continuity in the event of default. Given that the total debt-to-total assets ratio negatively affects return on assets, banks should strike a balance in their capital structure by adjusting their debt levels to ensure financial stability while still benefiting from leverage. Moreover, since long-term debt has been found to have a positive and significant impact on economic performance, banks should prioritise long-term financing over short-term debt, as it provides financial flexibility and reduces liquidity pressures. DECLARATION STATEMENT After aggregating input from all authors, I must verify the accuracy of the following information as the article's author. ▪ Conflicts of Interest/ Competing Interests: Based on my understanding, this article has no conflicts of interest. ▪ Funding Support: This article has not been funded by any organizations or agencies. This independence ensures that the research is conducted with objectivity and without any external influence. ▪ Ethical Approval and Consent to Participate: The content of this article does not necessitate ethical approval or consent to participate with supporting documentation. ▪ Data Access Statement and Material Availability: The adequate resources of this article are publicly accessible. ▪ Author’s Contributions: Each author has individually contributed to the article. 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