Effect of Cost Efficiency and Capital Adequacy on Financial Performance of Cooperative Financial Institutions in Nigeria

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• May 6, 2024
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Ik-Ugwoezuonu, Lilian
Department of Cooperative Economic and Management, Federal Polytechnic Nekede, Owerri, Imo State, Nigeria

Abstract This study examines the effect of cost efficiency and capital adequacy on financial performance of cooperative financial institutions in Nigeria. The specific objectives of the study are: to examine the effect of cost efficiency on the financial performance and to evaluate the effect of capital adequacy on the financial performance of cooperative financial institutions in Nigeria. The study was an ex post facto research design which span for a period of 13 years from 2011 to 2023. The study adopted a stratified sampling technique in determining the sample size, hence twelve (12) cooperative financial institutions were sampled for analysis. Utilizing panel regression analysis, the study tests two hypotheses regarding the impact of these financial indicators on financial performance. The first hypothesis investigates the relationship between cost efficiency, measured by the operating expense ratio, and financial performance, represented by the net profit margin. The analysis reveals a significant and positive association between cost efficiency and financial performance, indicating that improvements in cost efficiency can enhance the financial performance of cooperative financial institutions. The second hypothesis explores the relationship between capital adequacy, measured by the capital adequacy ratio, and financial performance. The findings demonstrate a significant and positive impact of capital adequacy on financial performance, suggesting that higher levels of capital adequacy are associated with improved financial performance. These results underscore the importance of managing costs effectively and maintaining adequate capitalization to enhance the overall performance and sustainability of cooperative financial institutions in Nigeria. The study provides valuable insights for policymakers, regulators, and practitioners in the financial sector, emphasizing the significance of cost efficiency and capital adequacy in driving financial performance and fostering long-term growth and stability. Keywords: Cost Efficiency; Capital Adequacy; Financial Performance; Cooperative Financial Institutions Citation: Ik-Ugwoezuonu, L. (2024). Effect of Cost Efficiency and Capital Adequacy on Financial Performance of Cooperative Financial Institutions in Nigeria. International Journal of Advanced Finance and Accounting, 5(1), 17-33 https://doi.org/10.5281/zenodo.11120010