JEFMS Journal

ABSTRACT:

Cost efficiency is very important in this new age since profitability continue to shrink and new business is becoming almost impossible. Therefore, this study is to examine impact of cost efficiency on financial performance of Nigeria deposit money banks. The specific objectives of the study were to; (i) test the effects of efficiency in Fueling and maintenance costs on the performance of Nigerian deposit money banks; (ii) to examine the impact of efficiency in General Administrative expenses on the Performance of Nigerian deposit money banks. Secondary data were collected from annual financial statements of the selected banks. Fixed-effect and random-effect regression analysis method were used to analyze the data from a sample of 13 listed Nigerian deposit money banks covering period of 2010 to 2019. The results showed that cost efficiency have significant impact on financial performance of Nigerian deposit money banks. Implying that bank managements tend to increase profitability by increasing power-running cost efficiency, and by reducing general administrative cost efficiency. The study recommends that; Bank management need to tap into alternative source of energy and holistic approach to monitor wastages and theft of fuel to reduce power running cost for performance increasement. The board of directors should ensure that good business administration is their focus, by employing efficient control on administrative expenses to improve bank performance.

KEYWORDS:

Cost Efficiency, Bank Performance, Fueling and maintenance costs, General Administrative expenses Market Orientation, Entrepreneurship Orientation, Competitive Advantages, Performance

REFERENCES:

1) Adelopo, I., Lloydking, R., & Tauringana, V. (2018). Determinants of Bank Profitability before, during, and after the Financial Crisis. International Journal of Managerial Finance, 14(4), 378-398. https://doi.org/10.1108/IJMF-07-2017-0148

2) Adenikinju, A. (2005). Analysis of the cost of Infrastructure Failures in a Developing Economy: The case of the Electricity Sector in Nigeria. African Economic Research Consortium, 148

3) Adewuyi, A. and Emmanuel Z. (2018): Electricity Outages and Firm Performance across the Six Geo-Political Zones in Nigeria: The Role of Corruption-Working Paper Series. Munich Personal RePEc Archive. Retrieved on 09/06/2020, Available online at: https://mpra.ub.uni-muenchen.de/92089/

4) Adjei-Frimpong, K., Gan, C. and Hu, B. (2014). Cost Efficiency of Ghana’s Banking Industry: A Panel Data Analysis. The International Journal of Business and Finance Research, 8(2)

5) Ajisafe, R. and Akinlo, A. (2014). Competition and Efficiency of Commercial Banks: An Empirical Evidence from Nigeria. American Journal of Economics, 4(1), 18-22 DOI: 10.5923/j.economics.20140401.02. (Accessed 21 January 2020)

6) Aktham, M. (2004). The Effect of Financial Liberation on the Efficiency of Financial Institutions: The Case of Jordanian Commercial Banks. Savings and Development, Vol. 28, No. 3, pp. 235-270. Available at: https://www.jstor.org/stable/25830866 Accessed: 05-04-2020 18:02 UTC

7) Al-Harbi, A. (2019). "The determinants of conventional banks profitability in developing and underdeveloped OIC countries", Journal of Economics, Finance and Administrative Science, 24(47), 4-28. Available online at https://doi.org/10.1108/JEFAS-05-2018-0043

8) Alin, M. (2011). The Determinants of Bank Efficiency and Productivity Growth in the Central and Eastern European Banking Systems. Eastern European Economics, 49(6), pp. 38-59. Available at: https://www.jstor.org/stable/41408826. Accessed: 05-04-2020 23:12 UTC

9) Aliyu, S. and Yusof, R. (2016). Profitability and Cost Efficiency of Islamic Banks: A Panel Analysis of Some Selected Countries. International Journal of Economics and Financial Issues, 6(4), 1736-1743

10) Almanaseer, M. (2014). The Impact of the Financial Crisis on the Islamic Banks Profitability - Evidence from GCC. International Journal of Financial Research, 5(3), 176-187

11) Almazari, A. (2014). Capital Adequacy, Cost Income Ratio and the Performance of Saudi Banks (2007-2011). International Journal of Academic Research in Accounting, Finance and Management Sciences, 3(4), 284–293

12) Almumani, M. (2013).Impact of Managerial Factors on Commercial Bank Profitability: Empirical Evidence from Jordan. International Journal of Academic Research in Accounting, Finance and Management Sciences, 3(3), 298–310

13) Batchimeg, B. (2017). Financial Performance Determinants of Organizations: The Case of Mongolian Companies. Journal Competitiveness, 9(3), 22-33

14) Bellal, H. (2017). Cost and Profit Efficiency of Bangladeshi Commercial Banks: A Stochastic Frontier Approach. International Journal of Economic Behavior and Organization, 5(6), 131-142

15) Berger, A. (1995). The Profit-Structure Relationship in Banking -Tests of Market-Power and Efficient Structure Hypotheses. Journal of Money, Credit and Banking, 27(2), 404-431

16) Bikker, J.(2010). Measuring Performance of Banks: An Assessment. Journal of Applied Business and Economics, 11(4), 14

17) BusinessDictionary (2018). Total Employment Cost. Retrieved on 05/06/2020 from: http://www.businessdictionary.com/definition/total-employment-cost.html

18) Çifci, S., Doğanay, M., and Gülşen, Z. (2010). “The Effect of Marketing Expenditures on Business Performance (Pazarlama Giderlerinin İşletme Karlılıkları Üzerindeki Etkisi).” Finans Politik & Ekonomik Yorumlar, 47(544), 95-102.

19) Curak, M., Poposki, K., and Pepur, S. (2012). Profitability Determinants of the Macedonian Banking Sector in Changing Environment. Procedia – Social and Behavioral Sciences, 44, 406-416

20) Doe, F., and Asamoah, E. (2014). The Effect of Electric Power Fluctuations on the Profitability and Competitiveness of SMEs : A Study of SMEs within the Accra Business District of Ghana. Journal of Competitiveness, 6(3), 32–48. http://doi.org/10.7441/joc.2014.03.03

21) Forkuoh, S., and Li, Y. (2015). Electricity Power Insecurity and SMEs Growth: A Case Study of the Cold Store Operators in the Asafo Market Area of the Kumasi Metro in Ghana. Open Journal of Business and Management, 3, 312–325.

22) Gado, N., and Nmadu, T. (2012). The Performance of Textile Companies in the North West Zone of Nigeria: The Role of Infrastructure as a Resource. International Journal of Human Resource Studies, 2(1), 89–100. http://doi.org/10.5296/ijhrs.v2i1.1259

23) Gichuki, C. (2014). Effect of Cost Management Strategies on the Financial Performance of Manufacturing Companies Listed on the Nairobi Securities Exchange. An Unpublished M.Sc. Thesis, University of Nairobi, Kenya

24) Goldenweiser, E. (1938). The function of Deposit Money Banking. Journal of the American Statistical Association, 33(202), 303-310. http://www.jstor.com/stable/2278904

25) Hooshyari, N., and Moghanloo, A. (2015). Evaluating the Impact of Inflation on Profitability of Banks. Kuwait Chapter of Arabian Journal of Business and Management Review, 4(9), 19-23

26) Howard, M. and Haynes, C. (2001). Commercial Bank Efficiency in Barbados/L’efficience Des Banques Commerciales A La Barbade. Savings and Development, 25(3), pp. 293-312. Available at: https://www.jstor.org/stable/25830766 .Accessed: 05-04-2020 21:57 UTChttp://doi.org/http://dx.doi.org/10.4236/ojbm.2015.33031

27) Ikpefan, O., Okorie, U., Agwu, M. and Achugamonu, B. (2014). Bank Capitalization and Cost of Equity on Profitability of Nigeria Deposit Money Banks – General Moment Approach. International Review of Management and Business Research, 3(4)

28) Inua, O. and Ozeigbe, D. (2018). Human Resources Accounting Attributes and Financial Performance of Quoted Banks in Nigeria. FUO Quarterly Journal of Contemporary Research, 6 (4), 136 - 151

29) Isik, I. and Hassan, K. (2002). Technical, Scale and Allocative Efficiencies of Turkish Banking Industry. Journal of Banking & Finance, 26, 719–766

30) Ivan, D., Nazaria, M., Ying, Y. and Jovena, K.(2018). Determinants of Banks’ Profitability in Malaysia. Munich Personal RePEc Archive (MPRA) Paper No. 85598, posted 30 Mar 2018 10:44 UTC. Available at: https://mpra.ub.unimuenchen. de/85598/

31) Izah, M., Nor, M. and Sudin, H. (2010). Cost and Profit Efficiency of the Malaysian Commercial Banks: A Comparison between Domestic and Foreign Banks. International Journal of Economics and Finance, 2(1)

32) Khan, M., Nouman, M., and Imran, M. (2015). Determinants of Financial Performance of Financial Sectors (An Assessment through Economic Value Added). Munich Personal RePEc Archive MPRA Paper No. 81659. Available online at: https://mpra.ub.uni-muenchen.de/81659/

33) Klein, P., and Weill, L. (2018). Bank profitability and economic growth. The Bank of Finland Institute for Economies in Transition – BOFIT Discussion Papers 15/2018

34) Knoema (2020). Nigeria – Total Population. Retrieved on 08/06/2020 from: https://knoema.com/atlas/Nigeria/Population

35) Kosmidou, K., Tanna, S., and Pasiouras, F. (2008). Determinants of Profitability of Domestic UK Commercial Banks: Panel Evidence from the period1995-2002. (Economic, Finance and Accounting Applied Research Working Paper series no. RP08-4) Coventry: Coventry University

36) Kutsienyo, L. (2011). The Determinants of Profitability of Banks in Ghana. An Unpublished MBA Thesis, Kwame Nkrumah University of Science and Technology, Ghana.

37) Leahy, A. (2012). “The Determinants of Profitability in the Pharmaceutical Industry”, American Journal of Health Sciences, 3 (1), 37-41

38) Manglik, M. and Goyal, A. (2016). Operating Margin Ratio (A Comparative Study of Selected Public and Private Sector Companies). Indian Journal of Research - PARIPEX, 5(5), 133-134

39) Maredza, A. (2014). Internal Determinants of Bank Profitability in South Africa: Does Bank Efficiency Matter? International Business & Economic Research Journal, 13(5), 1033 – 1046

40) Maudos, J., Pastor, J., Perez, F., and Quesada, J. (2002). Cost and profit efficiency in European banks. Journal of International Financial Markets, Institutions and Money, 12(1), 33–58

41) Mehta, A., and Bhavani, G. (2017). What Determines Banks’ Profitability? Evidence from Emerging Markets – The Case of the UAE Banking Sector. Accounting and Finance Research, 6(1), 77-88

42) Muhammad, A., Abdulraheem, I. and Yusuf, I. (2017). Impact of Electricity Service Quality on the Performance of Manufacturing SMEs In Nigeria. Journal of Business and Social Review in Emerging Economies, 3(1), 1-10. DOI: https://doi.org/10.26710/jbsee.v3i1.40

43) Muraina, S. (2018). Determinants of Listed Deposit Money Banks’ Profitability in Nigeria. International Journal of Finance and Banking Research. 4(3), 40-56. Available online at: doi: 10.11648/j.ijfbr.20180403.11

44) Mustahsan, E. and Bilal, A. (2017). Factors Influencing Cost Efficiency in Leading Banks “A Comparative Study of Banks Operating in UK and Germany Listed on London Stock Exchange”. International Journal of Scientific & Engineering Research, 8(1)

45) Naz, F., Ijaz, F., and Naqvi, F. (2016). Financial Performance of Firms: Evidence from Pakistan Cement Industry. Journal of teaching and Education, 05(01), 81- 94

46) NOIPolls (2018). Nigerians Are Spending Almost Three Times the Cost of Electricity on Alternative Sources of Power. Retrieved on 11/06/2020. Available online at: https://noi-polls.com/nigerians-are-spending-almost-three-times-thecost- of-electricity-on-alternative-sources-of-power/

47) Nyangwaria, M., and Munene, P. (2019). Relationship between Power Supply Interruptions and Financial Performance of Manufacturing Companies in Machakos County. Journal of Human Resource and Leadership, 3(3), 1-26.

48) Obioji, A. (2019). Nigerian Businesses Spend ₦5 trillion Yearly on Power Generation. Nairametrics. Retrieved on /06/2020. Available online at: https://nairametrics.com/2019/07/21/nigerian-businesses-spend-n5-trillion-yearly-on-powergeneration/

49) Okwo, I., Ugwunta, D., and Agu, S. (2012). An Examination of the Factors That Determine the Profitability of the Nigerian Beer Brewery Firms. Asian Economic and Financial Review, 2(7), 741-750

50) Olarewaju, O. and Obalade, A. (2015). Evaluation of the Determinants of Operational Efficiency in Nigerian Deposit Money Banks. International Journal of Economics, Commerce and Management, 3(2), 1-13

51) Olayinka, O. (2019). Indirect Costs and Profitability of Selected Manufacturing Companies in Nigeria. Crawford Journal of Business & Social Sciences, IX (2), 19-24

52) Olowosejeje, S. (2019). Nigeria’s Unreliable Electricity costs its Economy $29 billion a Year – Solar Power Would Have Save Billions. Quartz Africa. Retrieved on 11/06/2020. Available online at: https://qz.com/africa/1632978/nigeria-solarpower- could-fix-costly-electricity-problems/

53) Oluwagbemiga, O., Olugbenga, O. and Zaccheaus, S. (2014). Cost Management Practices and Firm’s Performance of Manufacturing Organizations. International Journal of Economics and Finance, 6 (6), 234-239

54) Ozili, P. and Uadiale, O.(2017). Ownership Concentration and Bank Profitability. Future Business Journal, 3, 159 - 171(Accessed 17 January 2020)

55) Punt, L. and Rooij, M. (2001). The Profit-structure Relationship and Mergers in The European Banking Industry: An Empirical Assessment. De Nederlandsche Bank, Econometric Research and Special Studies Department

56) Raoudha, B. (2010). Cost and Profit Efficiency of French Commercial Banks. MPRA Paper No. 34245, posted 27 Oct 2011 11:27 UTC. Available at: https://mpra.ub.uni-muenchen.de/34245/(Accessed 20 January 2020)

57) Said, S. and Masoud, R. (2014). Cost and Profit Efficiency and Management Behaviour of Commercial Banks (Evidence from Tanzania).Asian Economic and Financial Review, 4(10), 1447-1460(Accessed 18 January 2020)

58) Sambo, A., Garba, B., Zarma, I. and Gaji, M. (2010). Electricity Generation and the Present Challenges in the Nigerian Power Sector. ResearchGate. Retreived on 09/06/2020, from: https://www.researchgate.net/publication/228399732_Electricity_Generation_and_the_Present_Challenges_in_the_N igerian_Power_Sector

59) Samir, A. (2010). Cost and Profit Efficiency of Conventional and Islamic Banks in GCC Countries. Journal of Productivity Analysis, 34, 4 5–62 DOI 10.1007/s11123-009-0161-7 (Accessed 17 January 2020)

60) Staikouras, C., Mamatzakis, E. and Koutsomanoli-Filippaki, A.(2007). Operating Performance of the Banking Industry: An Empirical Investigation of the South Eastern European Region. South Eastern European Journal of Economics, 2: 245 - 266

61) Sufian, F., and Chong, R. (2008). Determinants of Bank Profitability in a Developing Economy: Empirical Evidence from the Philippines. Asian Academy of Management Journal of Accounting and Finance, 4(2), 91-112

62) Tobias, O. and Themba, M.(2011). Effects of Banking Sectoral Factors on the Profitability of Commercial Banks in Kenya. Economics and Finance Review, 1(5), 01–30. Available online at: http://wwww.businessjournalz.org/efr. (Accessed 18 January 2020)

63) Tuna, G. and Yildiz, S. (2016). The Impact of Operating Expenditures on Firm Performance in Turkey: Evidence from Technology Sector. EKOHOMNKA Original Scientific Article, 4, 1-16. Available at: doi:10.5937/ekonomika1604001T

64) Yahaya, O., Farouk, K., Yahaya, S. Yusuf, M. and Dania, I.(2015). Impact of Competition on the Financial Performance of Listed Deposit Money Banks in Nigeria. Journal of Economics and Sustainable Development, 6(18)