CORPORATE BOARD CHARACTERISTICS AND FINANCIAL PERFORMANCE: EVIDENCE FROM RETURN ON EQUITY OF QUOTED INSURANCE COMPANIES IN NIGERIA

Abstract

Lots of uncertainty still exists with respect to governance-performance linkage in the insurance industry in Nigeria particularly on which board attributes is responsible for generating value to the shareholders. Therefore, this study investigated the impact of board size, board gender diversity and board independence on the Return on Equity (ROE) of insurance quoted companies in Nigeria.  An ex-post facto research design was used. The secondary data were collected from Annual Reports (audited) from ten (10) insurance companies purposively selected and operating on the Nigerian Exchange Group (NGX) for period 2015-2024. Descriptive statistics, Pearson correlation, Levin – Lin Chu and ADF Fisher panel unit root tests, Kao residual cointegration test and Fixed Effects panel regression with Hausman specification test were used to analyse the data. From the Kao test, it was found that the relationship between the variables was long run (ADF = −7.4921; p = 0.0000). Fixed Effects regression results indicated that board size negatively affects ROE (beta = −0.0210; p = 0.0030), suggesting that an increased agency cost and coordination inefficiency will result in a decreasing return of equity to the shareholders as the board size gets larger. The other part of the board, however, was statistically significant and positively related to ROE (β = 0.6564; p = 0.0349) indicating that the presence of a larger proportion of female board members is positively related to the value of shareholders due to improved oversight and the lack of groupthink. Board Independence was not significantly related to the ROE (β = −0.4829; p = 0.2212). The study has identified the drivers of shareholder returns in the Nigerian insurance sector as diversity in the board and oversized board reduces the equity value. The study recommends policy actions to improve the representation of women on boards through a size reduction of the board to strategically increase the representation of women.