Foreign Direct Investment And Its Effect On The Performance Of Return On Assets Of Commercial Banks In Nigeria

Abstract

This study investigated the effects of Foreign Direct Investment (FDI) on the financial performance of commercial banks in Nigeria. The key indicator used here is Return on Assets (ROA), utilizing secondary data from 1991 to 2022, obtained from the Central Bank of Nigeria, National Bureau of Statistics, world bank, St. Louis Bank as well as Nigeria Deposit Insurance Corporation (NDIC) database, and financial reports of commercial banks, the study employed a variety of statistical techniques to analyze the data. These techniques include the Augmented Dickey-Fuller (ADF) unit root test for stationarity, cointegration test for long-run relationships, and the Autoregressive Distributed Lagged (ARDL) model for dynamic interactions. Additionally, post-estimation diagnostics such as the Breusch-Godfrey Serial Correlation LM Test, Jaque-Bera test, and CUSUM test for model stability were conducted. The Autoregressive Distributed Lag (ARDL) model results confirmed a long-run relationship between FDI and ROA, suggesting that foreign investments contribute to sustained improvements in asset utilization and firm efficiency. The Vector Autoregression (VAR) model further indicated dynamic interactions between FDI, ROE, and PM, where FDI exhibited both immediate and lagged effects, influenced by macroeconomic factors such as GDP growth, inflation, and trade openness.