International diversification strategy, resource intensity, and financial performance of listed banks in Nigeria

Abstract

This paper examines whether international diversification strategies and resource intensity have explanatory power for the financial performance of the select listed Nigerian banks. To do this, data for the relevant period 2012–2024 were obtained from the annual accounts of six listed Nigerian banks that have foreign operations. The data collected were analyzed with the Driscoll-Kraay Standard Error (DKSE) and the Feasible Generalized Least Squares (FGLS). The study provides strong empirical evidence that international diversification strategy negatively impacts corporate profitability and firm valuation for the Nigerian banks, implying economic sub-optimality due to low asset utilisation rate and high costs of foreign operations. Also, intangible asset intensity and cash asset intensity showed limited effectiveness in improving corporate profitability and valuation. However, the human capital intensity significantly spurs corporate profitability and valuation. The theoretical implication of the study is that an international diversification strategy, when not well executed or involves significant costs, can be value-reducing. At the same time, the possession of human capital and cash assets can create a competitive advantage and improve financial performance. Therefore, it is recommended that the Central Bank of Nigeria should strengthen the policy and enforcement frameworks for granting and renewal of foreign operations licences. The corporate managers of Nigerian banks should also strengthen their corporate governance systems to ensure capital allocation efficiency and sustained shareholder value optimization. Furthermore, prioritizing human capital development, optimal dividend policy, efficient capital structure, and asset utilization efficiency should be pursued to enhance corporate profitability and firm valuation.