Board Structure and the Financial Stability of Banks in Nigeria

Adeyemo M.o, O.P. Ologunwa and Obamuyi T.M.
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Adeyemo M.o: Polaris Bank Plc
O.P. Ologunwa: Department of Economics, Federal University of Technology, Akure, Nigeria
Obamuyi T.M.: Department of Economics, Federal University of Technology, Akure, Nigeria

International Journal of Research and Innovation in Social Science, 2024, vol. 8, issue 1, 2430-2441

Abstract: The stability and prosperity of any bank is to a large extent dependent on the integrity of its business and markets shares. This study therefore examined the effect of Board Structure (board size, board independence and board members affiliations) on Bank Financial Stability in Nigeria. The study employed quantitative research method with data spanning between 2010 and 2022. The descriptive statistics, which involved the characteristics of the existing corporate board structure of listed Banks in Nigeria showed that; no Bank in Nigeria has less than an average number of 10 Board members; that on the average, independent Board members account for 39% of the Board of Directors while 28% has the least affiliated Board members at the period of this study. The empirical results showed that Board size and the board independence have negative and significant effects on the Sharpe ratio of Nigerian Banks. This is an indication that Nigerian banks are highly sensitive to changes in Board independence and the reward to volatility ratio of banks fell approximately by 3% as Board size increased to 10%. Unlike the Board size and Board independence, Board affiliation has positive and significant effect on the Sharpe ratio of the Banks. In this regard, a 1% increase in Board affiliation will engender 0.4% improvement in the financial stability of Nigeria Banks. This follows that not only that the set of people made up of affiliated members are over-blotted but also that their impacts were positively felt in Nigeria Banks. Thus the study concludes that increase in Board size and Board independence inhibits financial stability of Nigeria Banks while Board affiliation, showed positive effect on financial stability. The study recommends that Nigeria banks should reduce Board size and critically look into the type of independent Board members employee while maintaining board affiliation in order to enhance financial stability.

Date: 2024
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