FINANCIAL RISK FUNDAMENTALS AND FIRM VALUE: EVIDENCE FROM LISTED DEPOSIT MONEY BANKS IN NIGERIA

Abstract

This study examines the effect of financial risk fundamentals which include liquidity, market, capital, operational, and credit risks on the firm value of listed Deposit Money Banks (DMBs) in Nigeria from 2007 to 2022. Using panel data from audited annual reports, the Nigerian Exchange Group (NGX), the Central Bank of Nigeria (CBN), and international financial databases, the analysis applies Two-Stage Least Squares (2SLS) regression to address endogeneity and capture bank-specific heterogeneity. Results show that liquidity, operational, and credit risks significantly reduce firm value, while capital adequacy exerts a positive influence. Market risk yields mixed effects, with net interest margin improving valuation and foreign exchange exposure lowering it. Wald tests confirm the joint significance of each risk category, leading to rejection of all null hypotheses. The findings highlight the need for integrated risk management strategies to enhance resilience, sustain investor confidence, and protect shareholder value in Nigeria's volatile banking environment. This study contributes by disaggregating risk categories within a unified empirical framework.