Enterprise Risk Management and Bank Valuation in the Stock Market: Evidence from the Nigerian Banking Industry

Accounting and Finance

This study uses a dynamic panel regression framework to analyze the strength of the effect of the financial dimension of enterprise risk management on bank valuation in the Nigerian banking industry. Three financial dimensions of ERM are examined: namely, capital risk management, liquidity risk management, and credit risk management, while bank valuation is measured in terms of market price per ordinary share. The data used comprise 144 bank-period panel observations obtained from 12 listed DMBs that are traded on the Nigerian exchange between 2010 and 2021. The empirical analysis is based on a regression model that controls for inflation and corporate governance in terms of board size. We find that market price per share is highly persistent as it depends on its one lagged value in a way that is highly statistically significant. We also find that while both credit risk management and liquidity risk management measures are not significant explanatory factors for bank valuation, capital risk management, measured by capital adequacy ratio, exerts a significant positive effect on bank valuation. Therefore, we conclude that the effect of the financial dimension of enterprise risk management on bank valuation depends on how the former is defined or measured.

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