Unobservable characteristics of board directors and the performance of financial services firms in Nigeria

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This paper examines the intricate link between unobservable characteristics of directors on the corporate board and firm performance. It aims to extend the literature on corporate governance and firm strategic performance from the perspective of emerging African economies. A mix of performance measures were used (Tobin Q, return on assets, and share price) and unobservable characteristics were captured as a stochastic element or heterogeneity of observable board characteristics (board activity, gender diversity, size, and independence). The study applied non-linear generalized auto-regressive conditional heteroscedasticity model to examine the data set consisting of 299 firm-year observations from 23 financial firms listed on the Nigerian Stock Exchange from 2006 to 2018. Positive skewness and leptokurtic distribution were found for all the variables. Correlation matrix revealed no multicollinearity, as the highest value was 0.2386. Empirical results suggest that unobservable characteristics significantly and positively influence firm performance as measured by return on assets and share price. This is because the coefficient of the lagged-value of the variance scaling parameter is positive and significant at the 1% level. However, with respect to Tobin Q measure, the result was positive but not significant at the 5% level. Implicitly, the result is sensitive to performance proxies. Accordingly, this study concludes that unobservable characteristics drive firm performance. It is recommended that boards and regulators should pay attention to unobservable characteristics.

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    • Table 1. Variable definition and measurement
    • Table 2. Descriptive statistics
    • Table 3. Correlation matrix
    • Table 4. Result of the model with Tobin Q as a performance measure
    • Table 5. Result of the model with ROA as a performance measure
    • Table 6. Result of the model with share price as a performance measure
    • Conceptualization
      Henry Osahon Osazevbaru
    • Data curation
      Henry Osahon Osazevbaru
    • Funding acquisition
      Henry Osahon Osazevbaru, Emmanuel Mitaire Tarurhor
    • Supervision
      Henry Osahon Osazevbaru
    • Validation
      Henry Osahon Osazevbaru
    • Writing – original draft
      Henry Osahon Osazevbaru, Emmanuel Mitaire Tarurhor
    • Writing – review & editing
      Henry Osahon Osazevbaru, Emmanuel Mitaire Tarurhor
    • Resources
      Henry Osahon Osazevbaru
    • Formal Analysis
      Emmanuel Mitaire Tarurhor
    • Investigation
      Emmanuel Mitaire Tarurhor
    • Methodology
      Emmanuel Mitaire Tarurhor
    • Software
      Emmanuel Mitaire Tarurhor