Corporate Board Independence and Profitability of Listed Deposit Money Banks in Nigeria: A Generalized Method of Moments Approach

The Global Financial Crisis (GFC) of 2007-2008 was attributed to failures in governance, particularly concerning boards of directors. It exposed vulnerabilities in the financial sector, causing many banks to experience significant losses, which weakened capital bases and decreased profitability, adversely affecting broader financial stability. This study explores the impact of board independence on the profitability (proxied by Profit after Tax) of listed Deposit Money Banks (DMBs) in Nigeria for the period 2009-2023. Thirteen of the fourteen listed DMBs that met the purposive sampling criteria were included. Secondary (balanced panel) data were collected from the databases of the sampled banks. The Generalized Method of Moments (GMM) regression was employed as the main regression technique, addressing issues of serial correlation, heteroskedasticity, contemporaneous correlation, and endogeneity. The study found that board independence had a positive and statistically significant effect on the profitability of listed DMBs in Nigeria. The study recommends a board composition that balances diversity of expertise with a supermajority of independent directors to ensure impartial decision-making. Furthermore, regulatory authorities should ensure compliance with directors’ independence standards by aligning board composition with regulatory and corporate governance standards. The implication of the significant and positive relationship exhibited by our results is that despite the higher costs associated with a quality board, its monitoring potentially leads to improved profitability.