Enterprise Risk Management and Financial Performance of Nigerian Deposit Money Banks: The Moderating Role of Corporate Governance

Accounting and Finance

This study attempts to estimate the strength of the effect of enterprise risk management on financial performance as well as the extent of the moderating influence of corporate governance on the empirical association between enterprise risk management and financial performance. The study constructs and enterprise risk management index which combines three financial risk measures: namely, capital risk, credit risk, and liquidity risk. Financial performance is examined from the stock market perspective using market price per share a measure. The data used comprise 144 bank-period panel observations obtained from 12 listed DMBs that are traded on the floor of the Nigerian exchange between 2010 and 2021. Consistent with the fixed effect regression assumption, we find that unobserved bank-specific factors such as management philosophy and leadership style play a highly significant role in determining financial performance of the selected listed deposit money banks (DMBs) in Nigeria. We also find evidence that market price per share significantly depends on its previous performance, hence, it is highly persistent. Our results also suggest that enterprise risk management index is highly significant and exerts a positive and sizable direct effect on financial performance. On the contrary, our empirical evidence shows that corporate governance, measured by board size, has no significant direct effect on financial performance and also does not moderate significantly the empirical association between enterprise risk management and financial performance. Hence, our results tend to support the theoretical argument that larger board size encumbers financial performance.

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