Corporate Governance, Risk Management Disclosure, and Firm Performance: A Theoretical and Empirical Review Perspective

Abstract

Article History JEL ClassificationG3, G32, L25.The purpose of this study is to empirically and theoretically review the relationship between Corporate Governance (CG), risk management, and firm performance by suggesting future research agenda in this promising area. The study suggests the use ex-post facto research design to collect data on board characteristics (board size, board composition, board meeting, and board expertise), and quantitative content analysis to collect data on risk management disclosure from the annual reports and accounts of financial service firms quoted on the Nigerian Stock Exchange (NSE). The study also proposes the use of multivariate statistics in analyzing the data to be collected. Albeit, the study did not carry out any statistically analysis, yet, the review and theoretical evidences have shown that board characteristics (board size, board composition, board meeting, and board expertise) and risk management disclosure have positive relationship with firm performance. The outcomes from literature and theoretical review will be of paramount importance to the interest of firms that sought to know how board characteristics and risk management disclosure relate to their performance. This may in a long way aid them in making various business decisions.

Do board characteristics and risk management disclosure have any effect on firm performance? Empirical evidence from Deposit Money Banks (DMBs) in Nigeria

“…As such, it is presumed that board of directors will mitigate the existing conflict of interest between shareholders and managers and to ensure that the profitability, as well as the wealth expansion objectives of the shareholders, are attained (Zahra & Pearce, 1989). Corporate boards have numerous characteristics which are but limited to; board size, board composition, CEO duality, board culture, board diversity (education, tenure, age), and board expertise (Brennan, 2006;Kakanda et al, 2017). Hence, the characteristics of the board selected for this study include size, composition, meetings, and expertise.…”

“…Yatim (2010) argues that board expertise is imperative in ensuring that the oversight function of the board is successfully carried out. In the same vein, it has been argued that directors that sit on the board of more than one company will enable them to acquire more skill, knowledge, and become more expertise in carrying out their oversight functions on managers' activities (Kakanda et al, 2017;Nadarajan, Chandren, Bahaudin, Mohammed Elias, & Mohd Nawi, 2015), which will aid in improving firm performance (Fama & Jensen, 1983;Field, Lowry, & Mkrtchyan, 2013). In essence, Elyasiani & Zhang (2015) assess the relationship between multiple directors and performance and risk of 116 sampled bank holding companies in the U.S. After analyzing the data obtained using a 3SLS technique, the result shows that multiple directorships (board expertise) is positively related to performance (ROA, Tobin's Q, and Earnings Before Interest and Tax [EBIT]).…”

“…The independent variables in this study as used in the developed hypotheses include board size, board composition, board meeting frequency, board expertise and risk management disclosure. For the purpose of this study, board size is measured as the number of directors on a company's board (Imam & Malik, 2007;Kakanda et al, 2017;Vafeas, 1999). Board composition is measured as the proportion of nonexecutive directors to the overall directors on a board (Akbar, 2015;Al-Najjar, 2014;Kurawa & Kabara, 2014).…”

“…The role of corporate board of directors alongside disclosure of risk management practices on firms' performance has gained considerable attention from investors, policymakers, and researchers due to global economic crisis and numerous corporate failures in both developed and emerging economies (for instance, Enron; dot-com bubble in 1997 in East Asia) (Carlon, Loftus, & Miller, 2003;Jones, Li, & Cannella Jr, 2015;Kakanda, Basariah, & Chandren, 2016;Kakanda et al, 2017;Marn & Romuald, 2012). To this effect, the issue of corporate catastrophes that arose from global economic disaster was severe for the reason that it was connected to financial institutions (who are the key players in the stock market of every economy) (IMF, 2009), and many financial firms have seized to exist, merged, or been acquired due to their disdain towards the fundamental procedures of risk management and control (Karatzias, 2011).…”

“…Thus, inadequate disclosures of corporate activities (including risk management practices) have a substantial However, in relation to the milieu of financial disaster, the Nigerian capital market also experienced its corporate collapse (for instance, the case of Savannah Bank Plc, Societe Generale Bank Ltd etc.) along with less effective CG that results to poor firm performance and paints doubt on the effectiveness of the existing Nigerian Code of CG (NCCG) of 2003 (Akpan, 2007;Kakanda et al, 2017;Mmadu, 2013). Further, the existence of a weak CG enveloped by inadequate information disclosure and limited frameworks for risk management of Deposit Money Banks (DMBs) (purely commercial banks) has significantly accrue to the financial crisis in the Nigerian economy (Sanusi, 2010).…”