CHAPTER FOUR

DATA PRESENTATION, ANALYSIS AND INTERPRETATION

4.0 Introduction
This chapter presents the result of the data analysis. The data for the analysis is extracted
form the published annual reports and accounts of the sampled deposit money banks listed for
the period of 5 years (2018-2022). . The study uses descriptive statistics, correlation and
multiple regressions to analyze the data. Also various robustness tests were conducted in
order to improve the validity of the results. Finally, the data analyzed is also interpreted and
discussed to ensure that it reaches a logical conclusion.

4.1 Descriptive statistics

This section provides the descriptive statistics result of the data generated on the dependent
and the explanatory variable of the study. It provides the summary of the collected data of the
dependent as well as the independent variable. Table 4.1 below present the result as follows:

Table 4.1: Descriptive Statistics Result

Variable Observation Mean Std. Dev. Minimum Maximum

ROA 25 .5950057 1.830601 .0037293 8.627482

OPRISK 25 .7907917 .7978587 .0010341 2.414033

CRISK 25 1.170032 1.694275 .1013824 6.46849

LRISK 25 .6022158 1.706117 .0010113 6.36375

SIZE 25 2.896398 7.576511 .0202178 25.14477

LQD 25 .0507054 .0119966 .0276137 .0788231

LEV 25 .2331556 . 1949488 .0198018 .6945963

PROT 25 .1535596 .0844969 .0126165 .2753063

Source: Author’s Computation Using STATA 15.0 Software

Table 4.1 above shows that the mean value of the ROA for the sampled deposit money banks
(DBMs) during the period of study is 0.59500057 with a standard deviation of 1.830601. This
is an indication that the data for return on asset (ROA) deviate from both sides of the mean by
183.0601 which means that the data is widely spread from its mean. The ROA also has a
minimum and maximum value of .0037293 and 8.627482 respectively. The operational risk

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(OPRISK) has a mean of 0.7907917 and a standard deviation of 0.7978587 with a minimum
and maximum value of .0010341 and 2.414033 respectively. This implies that data for
OPRISK deviate from both side of the mean by 0.79; hence there is a slight deviation from
the mean.

The table also shows mean value of 1.170032 for the credit risk (CRISK) during the period
and the standard deviation of 1.694275 with a minimum and maximum value of 0.1013824
and 6.46849 respectively. The results indicate a moderate spread of the data from its mean.
The table also reports the mean liquidity risk (LRISK) of the banks for the period as a mean
of 0.6022158 with standard deviation of 1.706117 and a maximum and minimum value of
0.0010113 and 6.36375 respectively. This shows that the data for the LRISK deviated from
both sides of the mean by 1.706 implying a moderate variation. In addition, firm size (SIZE)
also has a mean value of 2.896398 with a standard deviation of 7.576511 as well as a
minimum and maximum of 0.0202178 and 25.14477 respectively. The standard deviation
value indicates a wide range of variation of the data from the mean.

Furthermore, the table shows that the mean value for the firm liquidity (LQD) of the sampled
DMBs during the study period is 0.0507054 with a Standard deviation of .0119966 and a
minimum and maximum value of .0276137 and .0788231 respectively. The standard
deviation value indicates that the data slightly spread from the mean. The data for leverage
(LEV) also has an average value of 0.2331556 with a minimum and maximum of .0198018
and .6945963 respectively. Its standard deviation value of 0.2331556 indicates that there is a
slight deviation of the data from the mean. Finally, the table revealed the average value of
firm profitability (PROT) as 0.1535596 with a standard deviation of 0.0844969 and a
minimum and maximum value of .0126165 and 0.2753063 respectively. The value of the
standard deviation implies that there is a slight deviation of the data from its mean value.

4.2 Correlation Matrix

This section will present the correlation analysis result of the dependent and the independent
or explanatory variable. The correlation coefficient represents the linear association or
relationship between two variables (explained and explanatory) and also between the
explanatory variables themselves. The most widely used type of correlation coefficient is
Pearson(r) which is also called linear or product moment correlation. The correlation values
are derived from the Pearson correlation of two tailed significance.

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Table 4.2: Correlation Matrix Result

ROA OPRISK CRISK LRISK SIZE LQD LEV PROT

ROA 1
OPRISK 0.5301 1
CRISK 0.0180 0.2941 1
LRISK -0.0801 -0.0546 0.3429 1
SIZE -0.1130 -0.0598 0.6415 0.8460 1
LQD -0.1532 -0.2926 -0.5070 -0.1813 -0.3387 1
LEV -0.3044 0.0934 -0.1216 0.1907 0.1198 -0.0751 1
PROT 0.0816 -0.0939 -0.0077 -0.3146 -0.2008 -0.3655 -0.2917 1

Source: Author’s Computation Using STATA 15.0 Software

Table 4.2 above shows the result of the Pearson correlation analysis between dependent and
the independent variable employed in the study. The table revealed that there is a strong
positive relationship between Return on Asset (ROA) and Operational risk (OPRISK) of the
listed deposit money banks for the period under study as shown the correlation coefficient of
(0.5301). The table shows that there is a weak positive relationship between ROA and credit
risk (CRISK) as shown by the correlation coefficient value of (0.0180). However, there is a
weak negative relationship between ROA and liquidity Risk (LRISK) as shown by the
coefficient value of (–0.0801). Similarly, a weak negative relationship existed between ROA
and firm size (SIZE) as indicate by the correlation coefficient of (-0.1130).

Furthermore, the table revealed that there is a weak negative relationship between ROA and
liquidity ratio (LQD) as indicated by the correlation coefficient of (-0.1532). Leverage (LEV)
has a weak negative correlation with ROA as indicated by the correlation coefficient of (-
0.3044). Moreover, there is a weak positive relationship between firm profitability (PROT)
and ROA as shown by the correlation coefficient of (0.0816)

Moreover, the table revealed a weak positive relationship between CRISK and OPRISK as
shown by the correlation coefficient of (0.2941). There is a weak negative relationship
between LRISK and OPRISK as indicated by the coefficient value of (-0.0546). The table
also shows a negative correlation between SIZE and OPRISK as indicated by the correlation
coefficient value of (-0.0598). A weak negative relationship also existed between LQD and
OPRISK as shown by the coefficient value of (-0.2926). However, the table revealed that a

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weak positive relationship existed between LEV and OPRISK as indicated by the correlation
coefficient value of (0.0934). On contrary, the table revealed a weak negative relationship
between PROT and OPRISK as indicate by the coefficient value of (-0.0939)

In addition, table 4.2 above shows a weak negative relationship between LQD, LEV, PROT
and CRISK, while it indicated that a strong and weak positive relationship existed between
SIZE, LRISK and CRISK respectively. The table further revealed a weak negative
relationship between LQD, PROT and LRISK while it shows a strong and weak positive
relationship between SIZE, LEV and LRISK respectively. Moreover, a weak positive
relationship existed between LEV and SIZE, but a weak negative relation was evident
between LQD, PROT and SIZE. Finally, the table revealed a weak negative relationship
between LEV, PROT, and LQD as the relationship remained the same between PROT and
LEV as indicated by the coefficient value of (-0.2917).

4.3 Heteroscedasticity Test

One of the important assumptions of classical linear regression model is that the disturbances
appearing in the population regression are homoscedastic. This means that the variance of the
error term is consistent. A large chisquare indicates presence of heteroscedasticity. In the
result obtained from the heteroscedasticity test conducted in this work, the chi-square value
was large and p-value is small as can be seen in the table 4.3 below, indicating
heteroscedasticity was present and this shows violation of assumption number four of
classical linear regression model which states that there must be constant variance, that is the
disturbances appearing in the population regression function are homoscedastic. Therefore, as
a result of the presence of heteroscedasticity, the researcher decided to conduct fixed and
random effect model which will take care of the individual differences within units. This will
ensure that conclusions reached or inferences made are not misleading

Table 4.3: Heteroscedasticity Test Result

Chi Square value p-value

30.24 0.0000

Source: Author’s computation using STATA 15.0 Software

Table 4.3: shows the result of the heteroscedasticity test where the high value of the chi
square and the smallness of the probability value shows that presence of heteroscedasticity.

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Hence, necessitate the conduct of fixed and random effect model which will take care of the
individual differences within the units.

4.4 Presentation and Discussion of Regression Result

This section deals with the regression result of the explained variable proxied by Return on
asset (ROA) and the independent variables (ROA, OPRISK, CRISK, LRISK, SIZE, LQD
LEV, and PROT) of the study. The results generated from, Pooled OLS model, fixed and
random effect model were presented first before Hausman specification test so as to decide
the appropriate model from two possible options.

Table 4.4 Pooled OLS Model Regression Result

ROA Coefficient Std. Err. t-value P >|t| [95% Conf. Interval]

OPRISK 1.580085 .4911574 3.22 0.005 .5438329 2.616336

CRISK -.5300761 .3503015 -1.51 0.019 -1.269148 .2089953
LRISK -.0913746 .4224248 -0.22 0.831 -.982613 .7998638
SIZE .0771628 .1218219 0.63 0.035 -.1798589 .3341844
LQD -22.24379 37.63926 -0.59 0.562 -101.6557 57.16811
LEV -4.355793 1.859467 -2.34 0.032 -8.278925 -.4326606
PROT -.1892374 4.924724 -0.04 0.040 -10.5795 10.20102
cons 1.969743 2.859045 0.69 0.006 -4.062315 8.001801

R-squared = 0.4898
Adj R-squared = 0.2798
F(7, 17) = 2.33
Prob > F = 0.0030

Source: Author’s computation using STATA 15.0 Software

Table 4.4 above shows the results of Pooled OLS model. It revealed that, operational risk,
credit risk, firm’s size, leverage and profitability are significant while liquidity risk, and
liquidity are insignificant. Out of all the variables, five variables (OPRISK, CRISK, SIZE,
LEVE and PROT) are all significant at 5% level of significance.

From the table, the multiple coefficient of determination (R 2) is 0.4898, means that 48% of
the changes in return on asset (ROA) is caused by the changes in the explanatory variable

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(OPRISK, CRISK, LRISK, SIZE, LQD, LEV, PROT) while 52% of the changes is accounted
for the error term, i.e the changes are caused by other variables unknown to the researcher.
However, the value of the adjusted R2 = 0.2798.

The F-statistics value of 2.33 with a p-value of 0.0030 shows that the model is of good fit.

Table 4.5 Fixed effect Model Regression Result

ROA Coefficient. Std. Err. t-value P>|t| [95% Conf. Interval]

OPRISK 2.080216 1.143556 1.82 0.002 -.3902872 4.550719

CRISK -.7830402 .3735505 -2.10 0.016 -1.590047 .0239666
LRISK .0766899 .4465951 0.17 0.866 -.8881202 1.0415
SIZE .0868848 .1256252 0.69 0.001 -.1845119 .3582814
LQD -58.39762 39.65106 -1.47 0.105 -144.0585 27.26328
LEV 1.632736 3.403673 0.48 0.639 -5.720451 8.985924
PROT -13.80424 8.155915 -1.69 0.014 -31.42403 3.81554
cons 4.2685 3.186005 1.34 0.003 -2.614446 11.15145

R-sq:
Within = 0.5170
Between = 0.4750
Overall = 0.9205

Source: Author’s computation using STATA 15.0 Software

Table 4.5 above shows the results of fixed effects model. It revealed that, operational risk,
credit risk, firm’s size and profitability are significant while liquidity risk, liquidity and
leverage are insignificant. Out of all the variables, four variables (OPRISK, CRISK, SIZE,
and PROT) are all significant at 5% level of significance. The R 2 within, between and overall
are 51.70%, 47.50% and 92.05% respectively. Within R2 means that independent variables
explain 51.70% variations in the performance in this panel from year to year. Between R 2
indicates that independent variables explain the 47.50% variations in performance from bank
(cross-sectional unit) to other bank. While overall R 2 shows that independent variables
explains 92.05% variations in the whole panel.

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Table 4.6 Random Effects Model
ROA Coefficient. Std. Err. z-value P>|z| [95% Conf. Interval]

OPRISK .080085 .4911574 3.22 0.001 .6174336 2.542735

CRISK -.030761 .3503015 -1.51 0.040 -1.216654 .1565021
LRISK -.0913746 .4224248 -0.22 0.829 -.919312 .7365627
SIZE .0771628 .1218219 0.63 0.032 -.1616037 .3159292
LQD -.24379 37.63926 -0.59 0.555 -96.01538 51.52781
LEV -.355793 1.859467 -2.34 0.019 -8.000281 -.7113047
PROT -.1892374 4.924724 -0.04 0.029 -9.841518 9.463044
cons 1.969743 2.859045 0.69 0.491 -3.633883 7.573369

R-sq:
Within = 0.3260
Between = 0.9165
Overall = 0.4898
Wald chi2 (7) = 16.32
Prob > chi2 = 0.0223

Source: Author’s computation using STATA 15.0 Software

A result of random effect model is provided in table 4.6 above. Variables such as operational
risk, credit risk, firm size, leverage and profitability are significant in this model while
liquidity risk and liquidity are not significant. The within R 2 of this model is 32.00%, between
R2 is 91.65% while the overall R2 of the panel is 48.98%. This model is also significant as
indicated by Wald chi2 of 16.32 at 5% level of significance.

The study conducted Hausman’s specification test in order to decide the appropriate model
from the two possible options. The result of this test is provided in the Table 4.7 below:

Table 4.7: Hausman Specification Test Result

Variable Random Fixed Difference

OPRISK 1.580085 2.080216 -.5001311

CRISK -.5300761 -.7830402 .252964 .
LRISK -.0913746 .0766899 -.1680645 .

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 SIZE . 0771628 .0868848 -.009722 .
LQD -22.24379 -58.39762 36.15384 .
LEV -4.355793 1.632736 -5.988529 .
PROT -.1892374 -13.80424 13.61501

Chi2(7) = 6.66
Prob. = 0.1624

Source: Author’s computation using STATA 15.0 Software

The result of Hausman Fixed Random specification test shows a Chi2 of 6.66, which is
insignificance at the p-value of 0.1624. This indicates that fixed effect regression analysis is
not suitable for the study since the p-value is insignificant. However, the random effect
regression is more suitable.

To this effect, the Breusch and Pagan Langrangian Multiplier test for random effects was also
conducted, the result is presented in table 4.8 below:

Table 4.8: Langrangian Multiplier test for random effects

Chi Square value p-value

138.24 0.0032

Source: Author’s computation using STATA 15.0 Software

Table 4.8 above shows Breusch and Pagan Langrangian Multiplier test for random effects,
the result of which shows Chi2 value of 138.24 at the significance p-value of 0.0032. This
means that the random effect regression analysis is more appropriate for our analysis.
Therefore, our interpretation is based on random effect regression model. The summary of
the regression result obtained from random effects model of the study were analyzed and
discussed.

 Operational Risk (OPRISK) and Financial Performance (ROA)

The random effects regression result revealed that operational risk as shown in table 4.6 has a
z-value of 3.22 and a coefficient value of 0.080085 with a significant value of 0.001. This
signifies that operational risk has a positive and strong influence on financial performance of
listed deposit money banks in Gombe state. This implies that for every 1% increase in
operational risk, the ROA will increase by 8.0085%.

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  Credit Risk (CRISK) and Financial Performance (ROA)
The table shows that z-value for efficiency is 1.51 and coefficient of -0.030761 with a p-
value of 0.040 which is therefore significant at 5% level of significance. This signifies that
efficiency is negatively and significantly influencing the financial performance of the listed
deposit money banks in Gombe state. This implies that the higher the level of credit risk the
lower the financial performance of listed banks proxied by ROA. The negative effect of the
value of efficiency is consistent with our a priori expectation, implying that every 1%
increase in value of credit risk causes financial performance to decrease by 3.08%.

 Liquidity Risk (LRISK) and Financial Performance (ROA)

Liquidity ratio as measured by Liquid Assets/ Total Assets shows a z-value of -0.22 with a
coefficient value of -.0913746 and an insignificant p-value of 0.829. This implies that
liquidity risk is negatively influencing the financial performance of listed deposit money
banks within the study period. This means that the higher the liquidity risk of a bank, the less
the reported financial performance as proxied by ROA. The negative effect of liquidity risk is
consistent with our a priori expectation. This implies that for every 1% increase in liquidity
risk, the financial performance of listed deposit money banks in Gombe will decline by
9.14%. Therefore, it can be concluded that the higher the liquidity risk of a bank, the less the
return on asset.

 Bank Size (SIZE) and Financial Performance (ROA)

The random effects regression result revealed that bank size as shown in table 4.6 has a z-
value of 0.032 and a coefficient value of .0771628 with a significant value of 0.032. This
signifies that bank size has a positive and strong influence on financial performance of listed
deposit money banks in Gombe, that is, the greater the size of a bank, the higher the reported
return on asset. The positive effect of bank size is consistent with our apriori expectation.
This implies that for every 1% increase in bank size, the return n asset (ROA) will increase
by 7.72%. The finding is in line with the resource based theory which articulates a positive
and significant relationship between firm size and financial performance of a firm.

 Liquidity (LQD) and Financial Performance (ROA)

Liquidity ratio as measured by the ratio of current assets to current liabilities (CA/CL) shows
a z-value of -0.59 with a coefficient value of -0.24379 and an insignificant p-value of 0.555.
This implies that liquidity ratio is negatively influencing the financial performance of listed
deposit money banks within the study period. This means that the higher the liquidity

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position of the bank, the less the reported financial performance as proxied by ROA. The
negative effect of liquidity is consistent with our a priori expectation. This implies that for
every 1% increase in liquidity ratio, the financial performance of listed money banks will
decline by 24.38 %. Therefore, it can be concluded that the more liquid banks are, the less the
return on asset (ROA).

 Leverage (LEV) and Financial Performance (ROA)

Table 4.6 shows that z-value for leverage is -2.34 and coefficient of -0.355793 with a p-value
of 0.019 which is therefore significant at 1% level of significance. This signifies that leverage
is negatively and significantly influencing the financial performance of listed deposit money
banks in Gombe. This implies that the higher the level of leverage, the lower the financial
performance of listed deposit money banks proxied by ROA. The negative effect of the value
of leverage is consistent with our a priori expectation, implying that every 1% increase in
value of leverage causes financial performance to decline by 35.58%. Literature on capital
structure confirmed that the firms’ value will increase up to optimum point as leverage
increase and then declines if leverage is further increased beyond the optimum level.

 Profitability (PROT) and Financial Performance (ROA)

The profitability of the listed deposit money banks shows a z-value of -0.04 and a coefficient
value of 0.1892374 with a significant p-value of 0.029. This shows that profitability has a
significant and positive coefficient in explaining and predicting the financial performance of
the listed deposit money banks in Gombe within the study period. The relationship which is
in line with the expected sign implies that profitability is a good factor for the prediction of
financial performance of the listed deposit money banks.

The R2 (0.4894) which is the multiple coefficient of determination gives the percentage or
proportion of total variation in the dependent variables measured by ROA explained by the
independent variables jointly. Hence, the result of R 2 signifies that 48.94% of total variation
in the performance measured by ROA is caused by OPRISK, CRISK, LRISK, SIZE, LQD,
LEV, PROT of the banks. This indicates that the model is fit and the explanatory variables
are properly selected, combined and used.

Therefore, Wald chi2 of 16.32 which is significant at one percent (5%) indicates that financial
performance and firm specific characteristics model is fit. This means that there is 95%
probability that the relationship among the variables is not due to mere chance.

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4.5 Robustness test
This section presented the result of robustness test conducted to improve the validity of the
statistical inferences for the study. The problem of multicollinearity is discussed based on the
result generated for the purpose of the study. Multicollinearity is investigated using tolerance
and variance inflation factor (VIF) value. This is shown in table 4.9 below:

Table 4.9 Multicollinearity Test

Variable VIF 1/VIF

SIZE 8.47 0.118051

LRISK 5.16 0.193616

CRISK 3.50 0.285499

LQD 2.03 0.493242

PROT 1.72 0.580780

OPRISK 1.53 0.654883

LEV 1.31 0.765313

Source: Author’s Computation Using STATA 15.0 Software

The Variance Inflation Factors (VIF) and Tolerance Values (TV) for all the variables as
shown in table 4.9 are found to be consistently smaller than 10 and 1.00 respectively,
indicating absence of multicollinearity, this shows the appropriateness of the model of the
study.

Table 4.10: Normality Test

Variable Obs. Pr(Skewness) Pr(Kurtosis) adj chi2(2) Prob>chi2

ROA 25 0.0000 0.0000 33.65 0.0000

OPRISK 25 0.1307 0.3016 3.69 0.1578

CRISK 25 0.0001 0.0053 16.73 0.0002

LRISK 25 0.0000 0.0001 26.23 0.0000

SIZE 25 0.0000 0.0035 18.67 0.0001

LQD 25 0.5666 0.7685 0.43 0.8078

LEV 25 0.2618 0.4397 2.04 0.3605

PROT 25 0.5288 0.0630 4.08 0.1297

Source: Author’s Computation Using STATA 15.0 Software

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The table above shows a normality test result. The skewness result revealed that data
obtained for all the variables including dependent and independent are not abnormal, that is,
they are normally distributed. Hence, the study is considered valid if obtained from the data
quality. Therefore, the result from the normality test signifies the normality of data and
further substantiates the validity of the regression results.

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