Board Independence and Solvency Risk: The Moderating Role of Non-Executive Directors in Nigerian Listed Firms (Journal of Business Development and Management Research)

Summary

• The study covers 65 organisations registered on the NGX, using panel data from annual reports over 2014-2023.p.1
• Non-executive directors had a statistically significant impact on solvency risk (coefficient -0.68; p-value 0.002).p.1
• The model explained about 48 percent of the variation in solvency risk, indicating moderate explanatory power.p.1
• On average, non-executive directors accounted for approximately 62 percent of board members.p.9
• The average debt-to-equity ratio was 1.85, indicating moderate leverage among the sampled firms.p.9

Key insights

1. More non-executive directors are associated with lower solvency risk, implying stronger financial discipline and less excessive borrowing.p.10
2. Larger firms are more likely to use debt financing, which exposes them to long-term financial commitments and makes board oversight of borrowing more important.p.11
3. The correlation between solvency risk and non-executive directors is negative, so solvency risk decreased as their number increased.p.9
4. The author notes that reverse causality is a challenge and that System GMM could address endogeneity between board composition and solvency.p.12
5. The study concludes that enhancing board independence may improve firms' financial stability and long-term sustainability.p.1