Financial Disclosure Quality and Corporate Governance Practices on Stock Price Stability of Listed Deposit Money Banks in Nigeria

Abstract

This study examines the effect of financial disclosure quality and corporate governance practices on the stock price stability of listed deposit money banks (DMBs) in Nigeria. The study adopts a panel design covering twelve deposit money banks listed on the Nigerian Exchange Group (NGX) with complete data for 2015–2024 (120 bank-year observations), addressing the generalisability limitation of single-bank case studies. Financial disclosure quality is proxied by the natural logarithm of annual audit fees, and corporate governance by the proportion of independent directors on the board. Bank size is included as a firm-level control, and inflation, the official naira/US-dollar exchange rate, and the Central Bank of Nigeria's Monetary Policy Rate are incorporated as macroeconomic controls. All variables, including stock-price volatility (the standard deviation of monthly returns within each financial year), are measured annually, eliminating the frequency mismatch identified in earlier drafts. The study is guided by agency theory and signaling theory, and estimates Pooled OLS, one-way Random Effects (Hausman-preferred over Fixed Effects, χ² (2) = 2.46, p = 0.292), and a two-way (bank-and-year) Fixed Effects robustness specification, alongside diagnostic tests for multicollinearity, heteroscedasticity, serial correlation, and normality. Financial disclosure quality has a positive, statistically significant relationship with share-price volatility in the baseline firm-level model (Random Effects: β = 1.345, robust p = 0.0001) but loses statistical significance once macroeconomic variables are added as separate regressors (β = 0.897, p = 0.197), reflecting substantial collinearity among the macro series (see caveat below). Consistent with this, once a two-way fixed-effects specification is used to absorb common time/macroeconomic shocks without that collinearity (VIF up to 13.2), the disclosure–volatility relationship likewise loses statistical significance (β = 2.297, p = 0.417), indicating that much of the apparent effect reflects a shared time trend rather than a robust within-bank relationship. Corporate governance (independent-director count) and bank size are not statistically significant in any specification. Among the macroeconomic controls, the Monetary Policy Rate is positively and significantly associated with share-price volatility (β = 0.096, robust p = 0.023), while inflation and the exchange rate are not significant since collinearity among the three-macro series is accounted for. The full model explains between 25% and 36% of the variation in share-price volatility depending on specification. These results support a more cautious conclusion than a single-specification analysis would suggest financial disclosure quality is associated with share-price volatility, but this relationship is sensitive to how macroeconomic and time effects are controlled for, while tighter monetary policy is a robust, independent driver of volatility. The findings have direct implications for bank executives, regulators — particularly the Central Bank of Nigeria (CBN) and the Financial Reporting Council of Nigeria (FRCN) — and investors and are discussed alongside international evidence to situate the Nigerian findings within the broader literature.