EFFECT OF BOARD INDEPENDENCE AND DIRECTOR SHARE OWNERSHIP ON PROFITABILITY OF LISTED DEPOSIT MONEY BANKS IN NIGERIA

Abstract

The Global Financial Crisis (GFC) of 2007-2008 was attributed to governance failures, 
particularly concerning boards of directors. It exposed vulnerabilities in banking profitability, 
with many banks facing significant losses, weakening capital bases, and declining profitability, 
which affected broader financial stability. This study explores the effect of corporate board 
characteristics (board independence and director share ownership) on the profitability (Profit 
after Tax) of Deposit Money Banks (DMBs) listed on the Nigerian Exchange Group between 2009 
and 2023. From a population of fourteen listed DMBs, thirteen that met the purposive sampling 
criterion were used. Pertinent secondary data in the form of balanced panel data were collected 
from the relevant databases of the sampled banks. The Feasible Generalised Least Squares 
(FGLS) regression was used as the main regression technique, following diagnostic tests that 
identified serial correlation, heteroscedasticity, and contemporaneous correlation problems. The 
study found that board independence and director share ownership had a positive and statistically 
significant effect on the profitability of listed DMBs in Nigeria. The study recommends an optimal 
board composition that balances diversity of expertise with a supermajority of independent 
directors for certain vital board committees, to ensure unbiased decision-making. Lastly, the study 
suggests a plausible higher director share ownership, which could motivate directors to monitor 
and provide resources (advice, counsel, connections, etc.) to management, potentially leading to 
higher bank performance in the long run.