European Journal of Accounting, Finance and Investment

Corporate Governance And Risktaking Behaviour Of Commercial Banking Firms In Nigeria

Iwedi, Marshal

Department of Finance, Faculty of Administration and Management, Rivers State University Nkporlu-Oroworukwo Port Harcourt

Dumkpege, Wisdom Letom

Department of Finance, Faculty of Administration and Management, Rivers State University Nkporlu-Oroworukwo Port Harcourt

Nwogeh, Ogbonnaya Okike

Department of Finance, Faculty of Administration and Management, Rivers State University Nkporlu-Oroworukwo Port Harcourt

Keywords: Corporate Governance, Risk-Taking Behaviour, Commercial Banking Firms, Non-Performing Loans, Board Structure, Nigeria

---

Abstract

This study investigates the effect of corporate governance mechanisms on the risk-taking behaviour of Nigerian commercial banking firms, with risk-taking proxied by the non-performing loan ratio (NPL). The research is anchored in Agency Theory, complemented by Risk-Shifting and Regulatory Forbearance Theories, which explain how separation of ownership and control, weak oversight, and lenient regulatory intervention can incentivize excessive risk-taking. Employing a panel data approach covering 13 commercial banking firms over the period under review, the study applies pooled OLS, fixed effects, and random effects regression models, supported by unit root and correlation analyses to ensure data suitability and robustness. Descriptive statistics reveal elevated NPLs averaging 8.94%, substantial variation in board size (mean 12 directors), and a predominance of non-executive directors (average 64%), highlighting heterogeneity in governance structures. Correlation analysis indicates positive but weak associations between governance variables and NPLs, while panel regression results demonstrate that board size, percentage of executive directors, and percentage of non-executive directors do not have statistically significant effects on credit risk. These findings suggest a disconnect between formal board structures and effective risk management, implying that internal governance mechanisms alone are insufficient to mitigate bank risk in Nigeria. The study concludes that regulatory compliance, ownership structures, and behavioural governance factors play more critical roles in shaping risk-taking. Based on the findings, it is recommended that regulators strengthen enforcement of governance codes, banks align ownership and executive incentives with prudent risk behaviour, and boards enhance substantive effectiveness through capacity-building, risk oversight, and active strategic participation.

---

References

Acharya, V. V., & Richardson, M. (2009). Restoring financial stability: How to repair a failed system. Wiley Finance.

Adams, R. B., & Mehran, H. (2012). Bank board structure and performance: Evidence for large bank holding companies. Journal of Financial Intermediation, 21(2), 243–267.

Adebayo, O. (2022). Board size, decision-making agility, and operational risk in the Nigerian banking sector. Journal of Financial Stability, 15(3), 45–62.

Adediran, O., & Faloye, B. (2020). Foreign ownership and bank capital adequacy: A Nigerian perspective. CBN Economic and Financial Review, 58(2), 55–78.

Adedoyin, A. (2022). Corporate governance compliance and financial soundness: Evidence from Nigerian deposit money banks. Central Bank of Nigeria Journal of Applied Statistics, 13(1), 78–95.

Adegboye, A., Ojeka, S., Alabi, O., & Alade, M. (2018). Corporate governance and credit risk in Nigerian banks. Journal of Financial Regulation and Compliance, 26(3), 312–328.

Adegboye, A., Smith, K., & Ojo, J. (2021). Board risk committees and market risk exposure: Evidence from Nigeria. African Journal of Economic and Management Studies, 12(2), 201–218.

Adekunle, A., & Agbaje, W. (2020). Internal audit quality and operational risk management: Evidence from Nigeria. International Journal of Auditing, 24(2), 145–163.

Adeleke, B. (2021). Governance and risk culture: A long-run dynamic analysis of Nigerian banks. Journal of African Business, 22(4), 512–530.

Adeyemi, B., & Fagbemi, T. (2020). Ownership concentration and bank risk-taking: A non-linear analysis from Nigeria. Journal of African Business, 21(3), 345–362.

Adeyemi, B., & Olowookere, A. (2023). Long-term incentives and loan portfolio stability in Nigerian banks. Journal of Banking and Finance, 147, 106632.

Ailemen, I. O., & Emeni, F. K. (2020). Corporate governance and bank risk-taking in Nigeria. Journal of Accounting and Finance, 19(3), 12–27.

Alabi, T., & James, F. (2022). Government ownership and non-performing loans: The Nigerian moral hazard problem. Research in International Business and Finance, 60, 101578.

Amadi, C. (2020). Leadership stability in turbulent times: The role of CEO duality in Nigerian banks. Nigerian Journal of Management Studies, 20(1), 33–49.

Amah, P. (2019). Board expertise and risk-weighted asset evaluation in Nigerian commercial banks. International Journal of Banking and Finance, 14(1), 89–105.

Barry, T., Lepetit, L., & Tarazi, A. (2016). Ownership structure and risk in European banks. Journal of Banking & Finance, 71, 127–141.

Basel Committee on Banking Supervision. (2015). Corporate governance principles for banks. Bank for International Settlements.

Basel Committee on Banking Supervision. (2019). Corporate governance principles for banks. Bank for International Settlements.

Briggs, O. (2023). Shareholder activism and risk governance in an emerging market context. Global Finance Journal, 55, 100612.

Central Bank of Nigeria. (2010). Report on special investigation of banks. CBN.

Chung, H., & Wynn, J. P. (2019). Audit committee meeting frequency and the detection of emerging risks. Accounting Horizons, 33(2), 45–63.

Ellul, A., & Yerramilli, V. (2013). Stronger risk controls, lower risk: Evidence from U.S. bank holding companies. The Journal of Finance, 68(5), 1757–1803.

Ene, E. (2022). CEO power and speculative investments: Evidence from Nigerian banks. Journal of Corporate Governance, 18(2), 112–129.

Eriki, P., Okafor, C., & Uwuigbe, O. (2021). Audit committee financial expertise and earnings management in Nigerian deposit money banks. Journal of Accounting in Emerging Economies, 11(3), 421–441.

Eze, M. (2024). The 2022 CBN governance code and its impact on bank lending behaviour. Nigerian Journal of Financial Research, 11(1), 25–45.

Ezeoha, A. (2017). Foreign ownership, disclosure quality, and credit risk in Nigerian banks. Journal of Accounting in Emerging Economies, 7(1), 21–42.

Hansmann, H., & Kraakman, R. (2004). Agency problems and legal strategies. In R. Kraakman et al. (Eds.), The anatomy of corporate law (pp. 21–25). Oxford University Press.

Ibrahim, M., & Okeke, C. (2022). Diffused ownership and operational risk: Evidence from the Nigerian banking sector. Banks and Bank Systems, 17(3), 14–26.

Edeh, M. B., & Iwedi, M. (2024). Corporate governance and soundness of banking firms in Nigeria. African Banking and Finance Review Journal, 10(10), 1–13.

Krishnan, J. (2018). Audit committee quality and internal control: An empirical analysis. The Accounting Review, 80(2), 649–675.

Laeven, L., & Levine, R. (2009). Bank governance, regulation and risk taking. Journal of Financial Economics, 93(2), 259–275.

Li, Z., & Song, F. (2018). CEO duality and risk-taking in Chinese commercial banks. Journal of Asian Economics, 57, 1–15.

Minton, B. A., Taillard, J. P., & Williamson, R. (2014). Financial expertise of the board, risk taking, and performance: Evidence from bank holding companies. Journal of Financial and Quantitative Analysis, 49(2), 351–380.

Nduka, O. (2023). Audit committee diligence and enterprise risk management adoption in Nigerian financial institutions. International Journal of Disclosure and Governance, 20(1), 88–104.

Nte, U. (2021). Gender diversity, conservative lending, and credit quality in Nigerian bank boards. Gender in Management: An International Journal, 36(5), 589–605.

Nte, U. (2023). The 2014 CBN code and managerial accountability: A post-reform review. Journal of Financial Regulation and Compliance, 31(2), 145–162.

Nwokoma, N. (2019). The impact of banking sector reforms on the Nigerian economy. Economic and Financial Review, 57(4), 115–129.

Nwosu, G. (2020). Political interference and risk governance in Nigerian state-owned banks. Public Administration and Development, 40(3), 155–167.

Organisation for Economic Co-operation and Development. (2015). G20/OECD principles of corporate governance. OECD Publishing.

Ofoegbu, G. N., & Akani, H. W. (2017). Board gender diversity and bank risk: Evidence from Nigeria. International Journal of Economics and Financial Issues, 7(4), 27–35.

Ofori, D. (2023). Ownership structure and risk-taking incentives in the Nigerian banking industry. African Development Review, 35(1), 78–92.

Ogbulu, T. (2020). The politics of audit committee appointments in Nigerian banks. Critical Perspectives on Accounting, 71, 102100.

Oghojafor, B. A., George, O. J., & Owoyemi, O. O. (2011). Corporate governance and national culture: A review and theoretical integration. Journal of Business Systems, Governance & Ethics, 6(1), 3–18.

Ogunlana, O., & Bello, A. (2022). Executive compensation structure and investment risk in Nigerian banks. Journal of Financial Crime, 29(2), 612–628.

Ojo, J. (2021). Audit committee characteristics and non-performing loans: Nigerian evidence. Journal of Financial Crime, 28(3), 812–828.

Okegbe, T., & Uwuigbe, O. (2018). Audit committee independence and financial reporting quality in Nigeria. Asian Journal of Accounting Research, 3(2), 177–189.

Okoye, L. (2022). CEO duality and risk exposure in Nigerian medium-sized banks. International Journal of Business and Governance, 17(1), 45–60.

Olabisi, J., & Adewale, A. (2021). Institutional ownership and risky lending: Evidence from Nigeria. African Development Review, 33(2), 234–248.

Omoregie, P. (2020). Board structure and credit risk: A panel analysis of Nigerian deposit money banks. Journal of Accounting and Management, 10(2), 55–70.

Ongore, V. O., & K’Obonyo, P. (2016). Effects of board governance on performance of commercial banks in Kenya. African Journal of Economic and Management Studies, 7(1), 78–96.

Pathan, S. (2015). Strong boards, CEO power and bank risk-taking. Journal of Banking & Finance, 33(7), 1340–1350.

Rahman, M., & Ismail, A. (2020). Bidirectional causality between board independence and risk-taking: ASEAN bank evidence. Pacific-Basin Finance Journal, 60, 101285.

Salami, C., & Williams, D. (2021). The unintended consequences of executive pay caps in the Nigerian banking sector. Human Resource Management Journal, 31(3), 712–730.

Sanda, A. U., Mikailu, A. S., & Garba, T. (2019). Corporate governance mechanisms and banks' risk-taking in Nigeria. Journal of Accounting and Management, 9(1), 22–38.

Sanusi, L. S. (2011). Banking reform and its impact on the Nigerian economy. CBN Journal of Applied Statistics, 2(2), 115–122.

Sobodu, F. O., & Akiode, A. (2020). Corporate governance and banking sector crisis in Nigeria. Journal of Economics and Sustainable Development, 11(8), 45–54.

Uwuigbe, O. R., Uwuigbe, U., & Ajayi, A. (2018). Corporate governance and bank performance: A study of selected banks in Nigeria. African Research Review, 12(4), 50–61.

Yermack, D. (2017). Corporate governance and blockchains. Review of Finance, 21(1), 7–31.