OPERATIONAL RISK AND VALUE OF LISTED DEPOSIT MONEY BANKS IN NIGERIA

Abstract

This study examined the effect of operational risk on value of listed deposit money banks in Nigeria. Using panel data from thirteen sampled deposit money banks listed on the Nigerian Exchange Group over the period 2007-2023, the study investigated how operational risk factors influence firm value as measured by Tobin's Q. Operational risk was measured using three variables: cost-income ratio (CIR), operating cost ratio (OPR), and net interest margin to operating cost ratio (NOR). The study employed an ex-post facto research design, and data were analyzed using Two-Stage Least Square (2SLS) regression analysis to address potential endogeneity issues. Findings revealed that cost-income ratio had a significant negative effect on firm value, indicating that operational inefficiencies reduce market valuation of banks. Operating cost ratio also demonstrated a significant negative relationship with firm value, suggesting that higher operating costs relative to total assets diminish shareholders' value. Conversely, net interest margin to operating cost ratio showed a positive and significant effect on firm value, indicating that banks with higher net interest income relative to operating expenses enjoy higher market valuations. These findings underscore the importance of operational efficiency in enhancing the value of deposit money banks in Nigeria. The study recommends that bank managers should implement robust operational risk management frameworks, streamline cost structures, and enhance operational efficiency to improve firm value and maximize shareholder wealth.