BOARD INDEPENDENCE AND FINANCIAL PERFORMANCE: EVIDENCE FROM QUOTED MANUFACTURING COMPANIES IN NIGERIA

Abstract

Corporate governance remains a cornerstone of firm performance, particularly in developing economies where institutional frameworks are evolving. This study investigates the effect of board independence on the financial performance of quoted manufacturing companies in Nigeria between 2013 and 2022. Drawing on agency theory, which posits that independent directors serve as monitors to reduce agency costs and align managerial interests with those of shareholders, the study adopted an ex-post facto research design. Panel data regression techniques—including fixed effects, random effects, and least squares dummy variable models—were employed to analyze secondary data from 46 purposively selected firms. Descriptive statistics revealed a relatively high level of board independence, averaging 70.41%. However, inferential results showed no statistically significant effect of board independence on earnings per share (EPS), and a negative relationship with return on assets (ROA) in the fixed effects model. These findings suggest that while structural compliance with board independence norms is high, the effectiveness of such governance mechanisms in improving firm performance remains questionable. The study concludes that board independence alone does not guarantee enhanced financial performance unless complemented by genuine independence, expertise, and functional oversight. The research calls for further examination into contextual and qualitative factors influencing board effectiveness in Nigeria’s manufacturing sector.