Corporate Governance, Liquidity Risk Disclosure, and Financial Performance of Listed Deposit Money Banks in Nigeria

Abstract

This research investigates the impact of components of corporate governance, the disclosure of liquidity risk, and the financial performance of Deposit Money Banks (DMBs) quoted on the Nigerian Exchange Group (NGX). The study is motivated by the persistent problems of fragility of the banking sector which have continued to exist despite regulatory reforms. In this study, corporate governance is broken down to include mechanisms at the board level (Corporate Governance Index - CG) and mechanisms at the committee level (Audit/Risk Committee Mechanisms - ACM). In addition, liquidity risk disclosure is broken down to include quantitative disclosure (QDIS). The study adopted an ex post facto research design with a longitudinal approach. The study covered a ten-year period (2016–2025) and included seven listed DMBs, which provided a total of 70 bank-year observations. Fixed-effects panel regression analyses were applied, while leverage was included as a control variable. The financial performance of the banks was evaluated using ROA and Tobin’s Q. The findings indicate that CG had a positive and significant effect on Tobin’s Q (p=0.0174) but not on ROA, while QDIS showed a highly positive and significant effect on Tobin’s Q (p=0.0003) but no significant effect on ROA. ACM had no significant effect on both performance measures. In the joint model, CG and QDIS were the only statistically significant predictors of Tobin’s Q (Adjusted R²=0.2678, p=0.0011) while ACM remained statistically insignificant. The study establishes that corporate governance and the quantitative disclosure of liquidity risk were the significant predictors of the market-based performance of the banks, with disclosure being the dominant control of bank valuation. The study recommends to improve the quality of boards of directors, increase quantitative liquidity disclosures beyond the level required by regulations, and provide more tailored regulations to clarify the distinction of the board and committee functions. The study adds to existing literature by breaking down the components of governance and disclosure and providing evidence of the Nigerian banking sector after the reforms.