Derivative Asset Value and Profitability of Listed Commercial Banks in Nigeria

Abstract

This study investigates the effect of derivative asset value (DAV) on the profitability of listed commercial banks in Nigeria, measured by return on assets (ROA) and earnings per share (EPS). Using a purposive sample of ten banks from a population of fourteen, the study covers a ten-year period (2015–2024) and employs secondary data obtained from annual reports and audited financial statements. Descriptive statistics, correlation analysis, and panel unit root tests were conducted to assess the distribution, relationships, and stationarity of the variables. The Robust Least Squares (RLS) regression technique was applied to estimate the effect of derivative assets on profitability while accounting for outliers, heteroscedasticity, and extreme values. The findings reveal that derivative asset value has a positive and statistically significant effect on both ROA and EPS. Specifically, DAV significantly enhances operational efficiency, as reflected in ROA, and improves shareholder wealth, as indicated by EPS. These results are consistent with the a priori expectations and Risk Management Theory, which posit that effective derivative management stabilizes cash flows, reduces risk exposure, and contributes to financial performance. The study also draws on previous empirical evidence from Nigerian and international banks, highlighting the critical role of derivatives in risk mitigation and profitability enhancement. Based on these findings, it is recommended that internal risk management frameworks be strengthened and derivative strategies be structured to optimize asset utilization, while derivative instruments should also be integrated into shareholder value initiatives with transparent monitoring to maximize EPS. Overall, the study underscores the strategic importance of derivatives in enhancing both operational and shareholder-focused measures of profitability in Nigerian commercial banks.