Board Characteristics and Firm Value: Evidence from Listed Firms in Nigeria

Board Characteristics and Firm Value: Evidence from Listed Firms in Nigeria

Akinwumi, Akinlolu Adekunle^1* , Onmonya, Lucky Otsoge²

¹Student, Department of Accounting, Nile University of Nigeria, Nigeria.

²Lecturer, Department of Accounting, Nile University of Nigeria, Nigeria.

*Corresponding author

DOI: https://dx.doi.org/10.47772/IJRISS.2025.906000114

Received: 26 May 2025; Accepted: 30 May 2025; Published: 02 July 2025

ABSTRACT

The study investigated the impact of board characteristics (including board size, board independence and gender diversity) on firm value indicators (Market Capitalization and Earnings Per Share) among companies listed on the NGX 30 index. The study used audit quality as control variable. The study used secondary data covering 2014 to 2023. Robust Pooled Regression Analysis was adopted. The study found that board independence has significant positive influence on firm value under the two models. The study showed mixed findings for the impact of board size on firm value on both models. The study found that board size has significant positive impact on firm value under model 1 (MCAP) but insignificant positive impact on model 2 (EPS). The findings of this study on gender diversity are mixed on both models used. The results show gender diversity has significant negative effect on firm value under model 1 but show it has significant positive impact on firm value under model 2. The findings of this study on audit quality are mixed on both models. Audit quality has significant positive effect on firm value under model 1 but shows significant negative impact under model 2. The study recommended that the ratio of independent directors to the entire board size should be enhanced by shareholders at its annual general meetings and policy makers should mandate higher number of independent directors in the composition of the board.

Key words: Board Characteristics, Firm Value, NGX 30 Index, Market Capitalization, Earnings Per Share.

INTRODUCTION

Board Characteristics as key corporate governance framework have become essential aspects of modern business management, particularly in emerging markets where the regulatory environment and market dynamics differ significantly from those in developed economies. In Nigeria, the largest economy in Africa, corporate governance practices have attracted considerable attention due to their potential impact on firm performance and investor confidence. As one of the key elements of corporate governance, the composition and characteristics of a company’s board of directors play a critical role in shaping strategic decisions and ensuring effective oversight of management (Ujunwa, 2012).

Among the various board characteristics, board size, board independence, and gender diversity have been identified as significant factors influencing firm value. Board size refers to the number of directors on the board, which can affect the board’s ability to provide diverse perspectives and expertise. However, while larger boards may offer more comprehensive oversight, they can also lead to inefficiencies and slower decision-making processes, potentially diminishing firm performance (Guest, 2009). Board independence, on the other hand, involves the presence of non-executive directors who are not involved in the company’s daily operations, thereby providing unbiased oversight and reducing potential conflicts of interest between management and shareholders (Fama & Jensen, 1983). Gender diversity on boards is another critical aspect, with increasing evidence suggesting that the inclusion of women in boardrooms contributes to more effective governance, better risk management, and improved firm performance (Adams & Ferreira, 2009; Ntim, 2015).

Firm value, which reflects a company’s financial health and market performance, is often measured using metrics such as market capitalization and earnings per share (EPS). Market capitalization represents the total market value of a company’s outstanding shares and is an indicator of investor confidence and the firm’s perceived future prospects (Gompers, Ishii, & Metrick, 2003). Earnings per share (EPS), on the other hand, measures the profitability of a company on a per-share basis, serving as a key indicator of financial performance and a critical factor for investors (Bhagat & Bolton, 2008). Both of these metrics are crucial for assessing how effectively a company is managed and how well it can generate returns for its shareholders.

In Nigeria, where the corporate governance landscape is still evolving, the relationship between board characteristics and firm value has become an area of growing academic and practical interest. Previous studies have highlighted the importance of corporate governance in enhancing firm performance in developed markets, but there is a relative paucity of research focusing on the largest companies in Nigeria’s capital market (Okeahalam & Akinboade, 2003). This study seeks to fill this gap by examining how board size, board independence, and gender diversity influence firm value among the most capitalized listed companies in Nigeria. By focusing on this segment of the market, the study aims to provide insights that are not only academically significant but also practically relevant for policymakers, corporate leaders, and investors seeking to optimize corporate governance practices in Nigeria.

In Nigeria, corporate governance practices have undergone significant reforms in response to global standards and local imperatives. The 2018 introduction of the Nigerian Code of Corporate Governance marks a milestone in enhancing governance standards (FRC, 2018). Despite these reforms, challenges such as weak enforcement mechanisms and regulatory gaps persist, impacting governance effectiveness (Ogbechie & Nakpodia, 2020).

Corporate governance mechanisms play a critical role in ensuring transparency, accountability, and ethical conduct within organizations. In the Nigerian context, these mechanisms encompass various structures and processes, including board composition, executive compensation, shareholder rights, and disclosure practices (Adegbite & Nakajima, 2022). Adequate corporate governance is believed to enhance firm performance and value by aligning the interests of stakeholders and mitigating agency conflicts (Dike & Okoye, 2021).

Research focusing on companies listed on the Nigerian Stock Exchange (NSE), including those comprising the NGX 30 index, has shed light on the relationship between corporate governance practices and firm performance. For instance, studies by Oyedokun and Kajola (2019) and Olufemi and Salau (2021) have explored the impact of board characteristics, ownership structure, and audit quality on firm value indicators, providing valuable insights for Nigerian firms. Other studies have investigated the impact of corporate governance on firm value across different contexts. For example, research by Demsetz and Lehn (1985) found a positive correlation between board independence and firm value in the U.S. context. In a Nigerian context, studies such as those by Ighodaro and Emmanuel (2018) and Adegbite et al. (2020) have examined the relationship between corporate governance mechanisms and firm performance metrics, providing valuable insights into the efficacy of governance practices.

The findings of this research could have far-reaching implications, particularly in the context of ongoing efforts to improve corporate governance standards in Nigeria. As the country continues to attract both domestic and foreign investment, understanding the impact of board characteristics on firm value will be crucial for ensuring the sustainability and competitiveness of Nigerian companies in the global marketplace.

Hypotheses

Based on the objectives of the study, the following hypotheses are formulated to investigate the impact of corporate governance on firm value in the NGX 30:

H₀₁: Board size has no significant impact on firm value in Nigeria.

H₀₂: Board independence has no significant impact on firm value in Nigeria.

H₀₃: Gender diversity of boards has no significant impact on firm value in Nigeria.

H₀₄: Audit quality has no significant impact on firm value in Nigeria.

These hypotheses will be tested to determine the specific impacts and interrelationships between board characteristics variables and firm value in the Nigerian context.

Conceptual Framework

The conceptual framework for this study illustrates the hypothesized relationships between board characteristics (independent variables), firm value (dependent variables), and audit quality (control variable). This framework is grounded in the corporate governance literature, which suggests that the structure and composition of a company’s board of directors are critical determinants of firm performance and value.

Figure 1: Conceptual Framework: Showing the relationship between Board Characteristics and Firm Value

Board Characteristics and Firm Value

Several studies have examined the relationship between board characteristics and firm value in Nigeria. Adedoyin et al. (2023) found a positive association between board independence and firm value, suggesting that boards with a higher proportion of independent directors are more effective in monitoring management and safeguarding shareholder interests. Similarly, Owolabi and Amah (2021) observed a positive relationship between board size and firm value, indicating that larger boards are better equipped to provide diverse expertise and oversight.

Gender diversity on corporate boards has emerged as a critical aspect of corporate governance, with implications for firm performance and value creation. Studies in the Nigerian context have explored the relationship between gender diversity and firm value, albeit with mixed findings. While some researchers argue that gender-diverse boards are associated with improved financial performance and firm value (Adeleye et al., 2022), others find no significant relationship or even negative effects (Omotayo & Uwuigbe, 2023). These contrasting results underscore the need for further investigation into the dynamics of gender diversity and its impact on firm value in Nigeria.

Research on board size has yielded mixed findings regarding its impact on firm performance and governance effectiveness. While some studies suggest that larger boards facilitate diversity of expertise and perspectives (Smith et al., 2020), others argue that larger boards may lead to coordination challenges and decision-making inefficiencies (Jones & Brown, 2019). Recent research by Chen et al. (2023) found a curvilinear relationship between board size and firm value, indicating that moderate board sizes are associated with optimal governance outcomes.

The presence of independent directors on corporate boards is widely regarded as a cornerstone of effective governance. Recent studies emphasize the positive impact of board independence on firm performance and shareholder value (Garcia & Martinez, 2021). For instance, research by Wang et al. (2022) demonstrated that higher levels of board independence are associated with improved financial reporting quality and reduced agency costs.

The representation of women on corporate boards has garnered increasing attention in governance research. Recent studies highlight the positive impact of gender diversity on board decision-making processes and firm performance (Adams & Ferreira, 2022). For example, research by Carter et al. (2020) found that gender-diverse boards are associated with enhanced financial performance and innovation outcomes, underscoring the importance of gender diversity in governance.

​Firm value represents the total economic worth of a business. It reflects the theoretical price an investor would pay to acquire the entire company, encompassing all ownership interests and obligations.​ Market capitalization and earnings per share (EPS) are parts of widely used metrics for firm value. These proxies are used for analyzing the market’s perception of a firm’s worth and its financial performance.

The total market value of a company’s outstanding shares is represented by its market capitalization. It is computed by multiplying the number of outstanding shares by the current stock price. Market cap is often used as a proxy for firm value because it reflects the market’s collective assessment of a company’s future earnings potential, risk, and overall economic environment (Fama & French, 2023). While it provides a snapshot of the firm’s value, it can be influenced by market sentiment, external economic factors, and investor behavior, making it subject to fluctuations not directly tied to firm performance (Baker & Wurgler, 2022).

Earnings per share is a direct measure of profitability, calculated as net income divided by the total number of outstanding shares. It gives information on the amount of profit allocated to each share of stock. For investors, EPS is an essential metric since it provides a perspective on the company’s profits power on a per-share basis (Damodaran, 2022).

EPS as a proxy for firm value is beneficial because it ties closely to a company’s profitability, which in turn drives long-term value creation. Higher EPS generally suggests a profitable firm, which can translate to higher dividends and reinvestments for growth (Penman, 2023). However, one limitation of EPS is that it can be affected by non-operational factors, such as share buybacks, which reduce the number of outstanding shares and artificially inflate the EPS without real improvements in profitability (Dechow & Sloan, 2022).

Combining market capitalization and EPS offers a more balanced approach to firm valuation. While market capitalization provides a view of market expectations, EPS gives a clear picture of the firm’s actual performance. These metrics are often used together in valuation models like the price-to-earnings (P/E) ratio, which divides market capitalization by net earnings. This ratio helps determine whether a stock is overvalued or undervalued relative to its earnings potential (Fama & French, 2023).

Audit Quality

The quality of external audits is crucial for ensuring the reliability and integrity of financial reporting. Recent studies emphasize the importance of audit quality in enhancing investor confidence and reducing information asymmetry (Lennox et al., 2020). High-quality audits are associated with lower cost of capital, improved firm valuation, and reduced likelihood of financial restatements (DeFond et al., 2021). However, concerns regarding audit independence, regulatory oversight, and audit market concentration remain prevalent in governance discussions (Lennox & Pittman, 2017).

Theoretical Review

This study is underpinned by two theories. These are Signaling Theory and Resource Dependence Theory. Signaling theory underpins the relationship between board characteristics and market capitalization used as a proxy for firm value for the first model specification. Market capitalization is a function of stock prices of the listed firms which are largely signaled by the perception of the stock market players. Resource dependence theory, on the other hand, underpins the relationship between board characteristics and earnings per share used as a proxy for firm value for the second model specification. Earnings per share is a function of the actual performances of the listed firms and these are largely subject to the experience, skills and expertise of the board and especially the independent directors who are generally noted to be vast in business administration or endowed with the capacity to attract and retain such required expertise and skills to advance the business.

Signaling Theory

Signaling Theory has its roots in information economics, particularly in the work of Spence (1973), who introduced the concept in labor markets to explain how individuals could signal their qualifications to prospective employers. Since then, it has been applied in various fields, including finance and corporate governance, to examine how firms signal quality and strategic intentions to external stakeholders (Connelly et al., 2011). In corporate governance, signaling theory is particularly relevant in understanding how board characteristics can serve as signals of firm quality and future performance to investors and the broader market.

In corporate governance, signaling theory posits that firms use observable attributes, such as board composition, executive compensation, and disclosure policies, to signal their internal quality to external investors (Bergh et al., 2014). Board characteristics, such as independence, diversity, and expertise, act as signals of the firm’s commitment to effective governance and long-term value creation. For instance, the presence of independent directors may signal better oversight and reduced agency conflicts, leading to enhanced investor confidence (Krause et al., 2014).

Recent studies have examined the signaling effects of board diversity, particularly gender diversity. Terjesen et al. (2016) argue that firms with diverse boards send signals of inclusivity, adaptability, and alignment with modern governance standards, which can positively influence firm reputation and financial performance. Similarly, Liu et al. (2020) found that the presence of female directors signals the firm’s commitment to equality and social responsibility, which can enhance firm value, particularly in emerging markets.

In financial markets, signaling theory has been used to explain how firms communicate their value through voluntary disclosures, dividend policies, and strategic decisions such as mergers and acquisitions (Healy & Palepu, 2001). A well-composed board may signal financial stability and strategic foresight, reducing information asymmetry between the firm and external investors. For example, Vismara (2018) showed that companies with reputable board members are more likely to attract investment, especially in initial public offerings (IPOs), where investor uncertainty is high.

Empirical studies provide mixed evidence on the effectiveness of board characteristics as signals. Adams and Ferreira (2009) found that board diversity, particularly gender diversity, can serve as a signal of improved governance and decision-making processes. However, they also caution that tokenism or symbolic diversity can undermine these signals if not accompanied by substantive changes in board practices. In contrast, García-Meca et al. (2018) showed that board independence serves as a strong signal of reduced agency problems and enhanced firm value, particularly in family-owned businesses where conflicts of interest are prevalent.

Recent studies have focused on how board characteristics interact with other signaling mechanisms, such as corporate social responsibility (CSR) and environmental, social, and governance (ESG) initiatives. For instance, Yekini et al. (2022) found that firms with a diverse and independent board structure, combined with strong CSR practices, send a powerful signal of long-term sustainability and ethical governance, which enhances firm valuation in the Nigerian context.

Signaling theory offers a valuable framework for comprehending how organizations convey their internal governance quality to external stakeholders. Board characteristics such as diversity, independence, and expertise can serve as signals that reduce information asymmetry and enhance investor confidence, ultimately impacting firm value. Recent empirical studies suggest that these signals are particularly important in emerging markets like Nigeria, where corporate governance standards are still evolving. Future research could further explore the interplay between board characteristics and other signaling mechanisms, such as ESG initiatives and voluntary disclosures, to understand how these signals affect firm performance in different institutional contexts.

Resource Dependence Theory

Resource Dependence Theory (RDT), introduced by Pfeffer and Salancik (1978), posits that organizations are not self-sufficient and must rely on external resources to survive and grow. This dependence on external resources shapes a firm’s structure, strategy, and behavior, as it seeks to manage its resource dependencies by forming relationships with external entities such as suppliers, regulators, and other stakeholders. In corporate governance, RDT has been used to explain how board members provide access to critical resources, such as information, expertise, and connections, which influence firm performance (Hillman et al., 2009).

Boards of directors are central to RDT’s application in corporate governance, as they provide organizations with access to external resources, reduce uncertainty, and help the firm secure critical inputs. According to RDT, the composition of a board is crucial, as it determines the firm’s ability to mitigate external resource dependencies (Pfeffer, 1972). Board members bring expertise, industry knowledge, networks, and legitimacy that help firms navigate their external environment, influencing firm value and performance (Hillman & Dalziel, 2003).

Recent studies have emphasized the role of board diversity, both in terms of gender and professional background, as a key factor in resource provision. Liu et al. (2020) argue that diverse boards offer a wider range of perspectives, skills, and networks, which can enhance a firm’s ability to access resources and innovate. Similarly, Siciliano et al. (2021) highlight that board diversity, especially in emerging markets, serves as a critical factor in mitigating resource constraints and improving firm performance by providing firms with diverse and valuable external resources.

The concept of board capital, which is the aggregate knowledge, skills, and connections that directors bring to a firm, has been widely studied under the lens of RDT. Hillman et al. (2009) suggest that board members who possess high board capital provide organizations with key resources such as strategic advice, access to external networks, and legitimacy. This board capital can mitigate the effects of resource scarcity by offering solutions that enhance firm performance and resilience. A study by Kor and Sundaramurthy (2009) found that firms with directors who have strong external connections and industry expertise outperform their peers, as these directors can secure access to critical resources such as financing, technology, and regulatory support.

In emerging markets like Nigeria, where firms often face resource constraints, the role of boards in securing external resources is even more crucial. Resource Dependence Theory suggests that in such contexts, boards with external affiliations and government ties can play a pivotal role in helping firms access scarce resources and navigate regulatory challenges. Yekini et al. (2022) found that firms in Nigeria benefit from boards that have members with strong governmental and financial connections, as these boards are better equipped to secure funding, navigate regulatory frameworks, and manage uncertainties.

Similarly, recent studies have highlighted the importance of network ties in mitigating external risks in emerging markets. For example, Li and Liu (2020) found that firms with well-connected boards are better able to adapt to environmental changes and access resources such as capital and regulatory support, leading to enhanced firm performance. This suggests that board characteristics play a critical role in shaping how firms manage resource dependencies in less developed institutional environments.

Another important aspect of RDT is its explanation of interlocking directorates and strategic alliances as mechanisms to secure resources. Director interlocks, where board members serve on multiple boards, help firms gain access to broader networks and information that can be leveraged for competitive advantage (Mizruchi, 1996). By forming strategic alliances or appointing directors with interlocking roles, firms can reduce uncertainty and improve their access to external resources (Zona et al., 2018). This can lead to improved firm performance, particularly in industries where external resources, such as technology and capital, are critical to success.

While independent directors are often viewed through the lens of Agency Theory for their role in monitoring management, they also contribute significantly to resource provision. Kor and Misangyi (2008) found that independent directors with industry-specific knowledge and external ties can help firms access valuable resources and manage external relationships more effectively. This dual role of independent directors, both as monitors and resource providers, highlights the importance of board composition in shaping firm outcomes.

Resource Dependence Theory offers a valuable framework for understanding the role of boards in securing external resources and mitigating resource dependencies. In the context of corporate governance, the composition of boards, particularly in terms of diversity, professional background, and external connections, plays a significant role in shaping firm performance. Recent studies suggest that firms with diverse and well-connected boards are better equipped to manage resource constraints and improve performance, particularly in emerging markets where external resources are often scarce. As firms continue to navigate an increasingly uncertain and resource-constrained environment, the application of RDT remains highly relevant to understanding the relationship between board composition and firm success.

Empirical Review

Falikhatun et al (2020), in a study of Corporate Governance and Firm Value, obtained empirical evidence about the influence of Corporate Governance on firm value. The study’s research methodology in collecting data used quantitative data with purposive sampling method. The sample is a manufacturing companies listed on the IDX period 2014 to 2017, with 316 companies. In data analysis, multiple linear regression was used. The results show that Corporate Governance, which is proxied by independent commissioner and board of directors, has positive effect on firm value, while audit committee has no effect on firm value. Nonetheless, the independent commissioner, board of directors, and audit committee collectively impact corporate value.

The researchers suggested research sample to include more industry sectors, to obtain a comprehensive and more accurate sample, using other proxies that further affect firm values.

Fatma and Chouaibi (2021) examined the impact of the characteristics of two corporate governance mechanisms, namely, board of directors and ownership structure, on the firm value of European financial institutions. Using the market-to-book ratio calculated by the Thomson Reuters Eikon ASSET4 database, the study measured the firm value of 111 financial institutions belonging to 12 European countries listed on the stock exchange during the period 2007–2019. Multivariate regression analysis on panel data was used to estimate the relationship between corporate governance attributes, such as board size, board independence, board gender diversity, ownership concentration and CEO ownership, and the firm value of European financial institutions. The empirical findings indicate that board gender diversity and CEO ownership have a positive relationship with firm value, while board size and ownership concentration exhibit a negative relationship. Additionally, the results reveal that board independence does not have a significant correlation with firm value. Regarding control variables, the study highlights the significance of financial institutions’ size, age, and legal system in influencing firm value, whereas leverage and activity sector are found to have no significant correlation with it.

Ebimobowei (2022) investigated the effects of corporate governance mechanisms on the value of deposit money banks in Nigeria from 2010 to 2020. The study aims to achieve several specific objectives: analyze the relationship between board size and Tobin’s Q, assess the connection between board independence and Tobin’s Q, examine the link between board ownership and Tobin’s Q, explore the impact of gender diversity on Tobin’s Q, and evaluate how board meetings correlate with Tobin’s Q. The study population encompasses all deposit money banks. The Taro Yamene method of sample size determination was applied. The study used secondary data from the published financial statements of sampled banks for the period. The data analysis employed univariate, bivariate, and multivariate techniques. Findings from the multiple regression analysis revealed that board independence, board size, ownership structure, gender diversity, and board meetings each have a positive and significant impact on the value of Nigerian deposit money banks. The study ultimately concluded that corporate governance attributes play a crucial and significant role in enhancing the value of these banks. The study put forth several recommendations, notably advocating for an increase in board size to ensure a well-rounded mix of directors. A larger board enhances the likelihood of directors possessing diverse knowledge, skills, and networks. These attributes, in turn, have the potential to boost an organization’s financial performance. Also, deposit money banks in Nigeria should have nonexecutive directors who act as professional advisers to ensure that competition among insiders encourages measures consistent with the maximization of shareholder value. In summary, the study implies that adopting robust corporate governance characteristics significantly contributes to increasing the value of firms within Nigeria’s deposit money banks.

Sarker and Hossain (2023) investigated the influence of corporate governance practices on enhancing firm value in manufacturing industries in Bangladesh. The study analyzed a sample of 131 companies from 10 manufacturing industries listed on the Dhaka Stock Exchange (DSE), utilizing multiple regression on 1,193 firm-year observations spanning 2012 to 2021. The findings indicate that managerial ownership, foreign ownership, ownership concentration, board size, board independence, board diligence, and auditor quality positively and significantly impact firm value. However, audit committee size was found to have no significant effect on firm value. The practical implications of the study demonstrated that good corporate governance creates value and must be invigorated for the interest of all stakeholders.

Bukari et al (2024) investigated the effects of corporate governance (CG) attributes on firm value (FV), considering the moderating effect of ESG performance. This study considered the three strands of corporate governance, thus board’s structural, diversity and process attributes, which have not been considered in prior studies. The study adopted the Common Correlated Effects Mean Group (CCEMG) and the Augmented Mean Group (AMG) methods for its empirical analysis. Employing a quantitative research approach, it gathered data from 362 manufacturing companies located in Sub-Saharan Africa, covering the period from 2010 to 2022. The findings indicate that board diversity attributes, both gender diversity and the presence of foreign nationals exhibit positive associations with FV. In terms of board structural attributes, the study found that both independent boards and board size had a positive impact on firm value (FV). These elements are highlighted as significant contributors to improving the performance and valuation of firms. However, CEO duality shows a negative association with FV. Regarding the process attributes, holding regular board meetings enhances FV, while low meeting attendance negatively affects FV. The study further demonstrated that ESG performance significantly strengthens the relationship between corporate governance (CG) and firm value (FV). These findings emphasize the importance of policymakers introducing robust regulations that require firms to embed ESG principles into their governance frameworks, as this integration effectively boosts firm value.

Farawansyah et al (2024) investigated the effects of Financial Performance as determined by Profitability, Solvency, liquidity, and Good Corporate Governance, as decided by the Audit Committee on Firm Value and the Independent Board of Commissioners. Manufacturing companies listed on the Indonesia Stock Exchange are used as secondary data in this quantitative study approach. 143 manufacturing companies comprise the study’s population. Meanwhile, the intentional sampling technique was used to select the study’s sample. Multiple linear regression analysis is the analysis technique employed. This study used the t-test, coefficient of determination test, multicollinearity test, heteroscedasticity test, and Kolmogrof-Smirnof test. The results of the study show that the following elements have a partial beneficial impact on business value: profitability, solvency, liquidity, audit committee, and independent board of commissioners.

The researchers opine that managerial implications related to the influence of financial performance and good corporate governance are increased focus on financial performance, increased transparency and disclosure of information, implementation of good corporate governance practices, risk and compliance management.

RESEARCH METHODOLOGY

This study is an expo-facto type of research and it adopts a quantitative research approach to examine the relationship between board characteristics and firm value among companies listed on the NGX 30 index, the most capitalized listed companies in Nigeria. Quantitative methods allow for the systematic analysis of numerical data to test hypotheses and draw statistical inferences.

The population is the thirty most capitalized listed firms on Nigerian Exchange Group as at 31^st December, 2023. These firms are referred to as NGX 30. A sample of 25 firms was purposefully selected from the NGX 30 index based on availability of data and including those that have been listed on the Nigerian Exchange Group for up to minimum of ten (10) years. The NGX 30 index comprises the 30 most capitalized companies listed on the Nigerian Stock Exchange, representing a significant portion of the market capitalization. The companies listed on NGX 30 category as at 31st December, 2023 cover nine (9) sectors. These sectors are Agriculture, Conglomerates, Consumer Goods, Financial Services, Industrial Goods, Oil & Gas, Services, ICT and Utilities. The 25 sampled firms cut across seven (7) sectors of the Nigerian economy and therefore represent Nigerian evidence. These sectors covered are Agriculture, Conglomerates, Consumer Goods, Financial Services, Industrial Goods, Oil & Gas, and Services.

Companies included in the sample meet the following criteria: being listed on the NGX 30 index throughout the study period (2014-2023), having available data on board characteristics variables, firm value metrics, and control variable, and meeting minimum reporting requirements.

The study collects secondary data from annual reports, historical data sourced directly from the Nigerian Exchange Group, and other publicly available sources covering the period from 2014 to 2023. These formed the sources of data on board characteristics variables, firm value metrics, and control variables in respect of companies listed on the NGX 30 index.

Model Specification

Based on the research topic “Impact of Board Characteristics on Firm Value of The Most Capitalized Listed Companies in Nigeria,” and the provided variables, two equation models were constructed to capture the relationships between the dependent variables (Market Capitalization and Earnings Per Share) and the independent and control variables.

Model 1: Market Capitalization as the Dependent Variable

MCAP𝑖=𝛽0+𝛽1BS𝑖+𝛽2BI𝑖+𝛽3GD𝑖+𝛽4AQ𝑖+𝜖𝑖

Where:

MCAP𝑖​ = Market Capitalization for firm 𝑖

𝛽0​ = Intercept

𝛽1,𝛽2,…,𝛽4​ = Coefficients of respective variables

BS𝑖​ = Board Size for firm 𝑖

BI𝑖 = Board Independence for firm 𝑖

GD𝑖 = Gender Diversity for firm 𝑖

AQi​ = Audit Quality for firm 𝑖

ϵi​ = Error term

Model 2: Earnings Per Share (EPS) as the Dependent Variable

EPS𝑖=𝛼0+𝛼1BS𝑖+𝛼2BI𝑖+𝛼3GD𝑖+𝛼4AQ𝑖+𝜇𝑖

Where:

EPS𝑖​ = Earnings Per Share for firm 𝑖

𝛼0 = Intercept

𝛼1, 𝛼2, …, 𝛼4 = Coefficients of respective variables

𝜇𝑖​ = Error term

Variable Measurements

Table 1 presents the variable measurements as follows:

Table 1: Variable Measurements

Source: Researcher’s Compilation (2025).

Data Analysis Techniques                              

The study used descriptive statistics to summarize and describe the main features of the data, including measures of central tendency (mean, median), dispersion (standard deviation, range), and distribution (skewness, kurtosis). This provides an initial understanding of the characteristics of the variables and the distribution of data. Correlation analysis is conducted to examine the relationships between variables, particularly the correlation between board characteristics and firm value indicators. Pearson’s correlation coefficient or Spearman’s rank correlation coefficient is calculated to determine the strength and direction of the relationships.

The study employed multiple regression analysis to assess the relationship between board characteristics and firm value indicators while controlling for relevant factors. The regression model includes independent variables (board characteristics), control variable (Audit Quality).

Robustness checks are performed to assess the stability and reliability of the regression results. This includes conducting sensitivity analyses with different model specifications, testing for multicollinearity among independent variables, and checking for heteroscedasticity using diagnostic tests such as Breusch-Pagan test/White test.

Statistical inference is used to draw conclusions from the data analysis results. Hypothesis testing is conducted to assess the significance of regression coefficients and determine whether the relationships between variables are statistically significant. To estimate the range where population parameters might be located, confidence intervals were calculated.

The goodness-of-fit of the regression models is assessed using measures such as R-squared, adjusted R-squared, and F-test. These statistics indicate the proportion of variance explained by the independent variables and the overall fit of the models. Model diagnostics, including residual analysis and tests for model assumptions, are also conducted to ensure the validity of the regression results.

By employing these data analysis techniques, the study aims to systematically examine the impact of board characteristics on firm value indicators, providing robust empirical evidence and insights into the effectiveness of governance practices in the Nigerian corporate sector.

DATA ANALYSIS

Descriptive Statistics

Tables 2 and 3 present summaries of the descriptive statistics of the variables used in model 1 (MCAP) and model 2 (EPS) respectively.

Table 2: Summary of Descriptive Statistics (Model 1 – MCAP)

Source: Output from Stata 15.0

Table 3: Summary of Descriptive Statistics (Model 2 – EPS)

Source: Output from Stata 15.0

The descriptive result in table 2 shows that Market Capitalization (MCAP) with an average value of 4.2701 has standard deviation of 7.6503. This implies that data points are above the mean indicating high dispersion value in MCAP across the total observation as shown by the Maximum and Minimum values of 54.5125 and 0.0786. The descriptive result in table 3 shows that Earnings Per Share (EPS) with an average value of 8.7023 has standard deviation of 29.4183. This implies that data points are above the mean indicating high dispersion value in EPS across the total observation as shown by the Maximum and Minimum values of 212.7048 and 0.0000.

The descriptive statistics as shown in both tables 2 and 3 indicate Board Size (BS) has an average value of 11.5668 and 2.88615 standard deviation. This implies that data points are below the mean, that is, data clustered around the mean (there is, a lower dispersion) in BS across the total observation as shown by the Maximum and Minimum values of 6 and 19. Statistical observation from Board Independence (BI) shows that it has a mean of 0.2015 with a standard deviation of 0.1554 indicates that data clustered around the mean, that is, data points are below the mean in the BI, low dispersion value. The Maximum and Minimum are 0.5833 and 0.0000 respectively. Gender Diversity (GD) has a mean of 0.2290 and standard deviation of 0.1359 below the mean showing low dispersion of values with maximum and minimum values of 0.545 and 0.0000 respectively.

Lastly, Audit Quality (AQ), which is the control variable, has a mean of 0.9514 and standard deviation of 0.2154 below the mean showing low dispersion of values with maximum and minimum values of 1 and 0 respectively.

Correlation Matrix

Correlation analysis was carried out to determine the degree of relationship between the dependent variable: firm value proxied by MCAP and EPS, independent variables (Board Characteristics) of the study proxied by BS, BI, GD and AQ which is the control variable. The results are in Tables 4 and 5 below.

Table 4: Correlation Matrix (Model 1 – MCAP)

Source: Output from Stata 15.0

The Correlation results in table 4 indicates that board size, board independence and audit quality are positively correlated with firm value respectively. This indicates that board size, board independence and audit quality have positive influence on firm value (MCAP) of NGX 30 index companies in Nigeria. However, gender diversity has adverse effects on firm value as proxied by MCAP in the study.

According to Glen (2015), when correlation is 0.80 between two variables, it means there is presence of multicollinearity problem. However, as shown in table 4, there is no variable that is up to 0.80, which shows that there is no multicollinearity among variables.

Table 5: Correlation Matrix (Model 2 – EPS)

Source: Output from Stata 15.0

From the Correlation results in table 5, it indicates that board size, board independence, gender diversity and audit quality are all positively correlated with firm value respectively. This indicates that board size, board independence, gender diversity and audit quality have positive influence on firm value (EPS) of NGX 30 index companies in Nigeria.

However, as shown in table 5, there is no variable that is up to 0.80, which shows that there is no multicollinearity among variables (Glen, 2015).

Regression Analysis

The Regression analysis shown in table 6 is robust pooled regression results for model 1 (MCAP).

Table 6: Robust Pooled Regression Results for Model 1 (MCAP)

Source: Output from Stata 15.0

Table 6 shows the results of the robust pooled regression as specified by econometric model 1. The result shows that board size has a positive value of 0.6419 and a significant impact on firm value (MCAP) of NGX 30 index companies in Nigeria. This means that the number of board members has the potential average of 0.64 percent positive influence on the value of firm NGX 30 companies listed on the Nigerian Exchange Group, while holding other variables constant. This result is very significant with a p-value of 0.001. Board independence also has a positive value of 12.4754 and a significant impact on firm value (MCAP) of NGX 30 index companies in Nigeria. It means that board independence has the potential average of 12.47 percent positive influence on the value of firm NGX 30 companies listed on the Nigerian Exchange Group, while holding other variables constant. With the p-value of 0.000, it is evident that the result is very significant.

Gender diversity also has a negative value of 8.0301 and a significant influence on firm value (EPS) of NGX 30 index companies in Nigeria. It means that the use of gender diversity has the potential average of 8.03 percent negative influence on the value of firm NGX 30 companies listed on the Nigerian Exchange Group, while holding other variables constant. With the p-value of 0.026, it is evident that the result is significant.

Audit Quality has a significant positive influence on firm value (MCAP) with a value of 2.3528 and p value of 0.024 showing about 2.35 percent positive impact.

The coefficient of determination, R² = 0.1319 shows that 13.19 percent of variation in firm value (MCAP) is explained by the independent and control variables; BS, BI, GD and AQ.

The Regression analysis shown in table 7 is robust pooled regression results for model 2 (EPS).

Table 7: Robust Pooled Regression Results for Model 2 (EPS)

Source: Output from Stata 15.0

Table 7 depicts the results of the robust pooled regression as specified by econometric model 2. The result shows that board size has a positive value of 0.3881 and no significant impact on firm value (EPS) of NGX 30 index companies in Nigeria. This means that with a p-value of 0.451, the number of board members has no significant influence on the value of firm NGX 30 companies listed on the Nigerian Exchange Group, while holding other variables constant. However, the result shows that board independence has a positive value of 54.5293 and a significant impact on firm value (EPS) of NGX 30 index companies in Nigeria. It means that the use of board independence has the potential average of 54.53 percent positive influence on the value of firm NGX 30 companies listed on the Nigerian Exchange Group, while holding other variables constant. With the p-value of 0.003, it is evident that the result is very significant.

Gender diversity also has a positive value of 44.0705 and a significant influence on firm value (EPS) of NGX 30 index companies in Nigeria. It means that the use of gender diversity has the potential average of 44/07 percent positive influence on the value of firm NGX 30 companies listed on the Nigerian Exchange Group, while holding other variables constant. With the p-value of 0.021, it is evident that the result is significant.

In contrast to the above, audit quality has significant negative impact on firm value (EPS) of NGX 30 index companies in Nigeria as evident by negative value of -10.4730 with significant p-values of 0.031.

The coefficient of determination, R² = 0.1362 shows that 13.62 percent of variation in firm value (EPS) is explained by the independent and control variables; BS, BI, GD and AQ.

DISCUSSION OF FINDINGS

The study showed mixed findings for the impact of board size on firm value on both models. The study found that board size has significant positive impact on firm value under Model 1 (MCAP) but insignificant positive impact on Model 2 (EPS). These findings negate the position of Fatma and Chouaibi (2021) who found negative impact. The study’s findings under Model 1 (MCAP) however supports the findings of both Ebimobowei (2022) and Bukari et al (2024).

The study found that board independence has significant positive influence on firm value under the two models. The findings of this study on board independence support the results of different studies conducted by Falikhatun et al (2020), Ebimobowei (2022), Sarker and Hossain (2023) and Farawansyah et al (2024). This however negates the findings of Fatma and Chouaibi (2021).

The findings of this study on gender diversity are mixed on both models. The results show gender diversity has significant negative effect on firm value under Model 1 (MCAP) but show it has significant positive impact on firm value under Model 2 (EPS). The finding under Model 1 negates the findings of Fatma and Chouaibi (2021), Ebimobowei (2022) and Bukari et al (2024). However, the finding under Model 2 affirms their positions.

The findings of this study on audit quality are mixed on both the Models 1 and 2. Audit quality has significant positive effect on firm value under Model 1 (MCAP) but shows significant negative impact under Model 2 (EPS). While the finding under Model 1 supports the position of Sarker and Hossain (2023), the finding under Model 2 negates it.

CONCLUSION AND RECOMMENDATIONS

The study concluded that having a higher number of independent directors in the composition of the board of directors of a company will enhance the good practice of corporate governance and this will ultimately improve firm value. The study also concluded that board size could also be of influence in enhancing good corporate governance practice of firms.

The study therefore recommended that the ratio of independent directors to the entire board size should be enhanced by shareholders at its annual general meetings and policy makers should mandate higher number of independent directors in the composition of the board.

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