The Role of Corporate Heterogeneity in the Relationship Between Credit Risk Management and Bank Performance
Abstract
This research paper sought to determine the role of corporate (board) heterogeneity in the relationship between credit risk management and bank's financial performance in Nigeria. For the purpose of this research, the ex post facto research design was adopted and data collected through the process of contents analysis from a sample of 10 deposit money banks for a period of ten (10) years from 2010 to 2019. Two panel least squares models were specified to determine the extent of effect of corporate heterogeneity on the relationship between the dependent and independent variables. Findings of the research show that corporate (board) heterogeneity plays an important role in moderating the relationship between credit risk management activities of banks and their financial performance. This is considering that the coefficient of determination (R2) for the moderating role is significantly larger 40.42% compared to 27.02% when excluded. This implies that a heterogeneous board of directors are sensitive and play an important role in determining the credit risk exposures of banks. Thus, it is recommended that banks ensure that their boards of directors are adequately diversified. Secondly, the inclusion of more independent board members is also recommended. Regulators of the industry can also be instrumental in ensuring that banks constitute heterogeneous boards of directors by making policies in that direction.
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