GREY DIRECTORS ATTRIBUTE AND IDIOSYNCRATIC RISK OF LISTED MANUFACTURING FIRMS IN NIGERIA: MODERATING EFFECT OF TAX OPTIMIZATION STRATEGY
Keywords:
Grey Director Size, Grey Director Gender Diversity, Idiosyncratic RiskAbstract
The broad objective of this study was to investigate the nexus between grey directors’ attribute and idiosyncratic risk of listed manufacturing firms in Nigeria using a ten (10) year time frame that span through 2014 to 2023. In addition to the broad objective, this study also determined the moderating effect of tax optimization strategy on the relationship that exists between grey directors’ attribute and idiosyncratic risk. To achieve the stated broad objectives, specific attributes of grey directors’ which have been widely employed in related extant literature to include grey director size, and grey director gender diversity were selected to ascertain the extent to which they affect idiosyncratic risk. This study employed ex-post facto and descriptive research design on a panel data set sourced from annual financial reports of a sample of forty-six listed manufacturing firms in Nigeria. Further, Iterated Generalized Least Squares (IGLS) Random Effects with Heteroskedastic Panels regression model was employed to test the formulated hypotheses after fulfilling the necessary conditions for obtaining non-spurious regression estimates. The findings of this study have been broadly categorized into two. First, while certain grey director attributes to include gender diversity, director size, and overlapping roles did not exhibit significant relationship with firm-specific risk. Second, when the moderating influence of tax optimization measured through debt tax shields, gender diversity becomes significantly related to decreased risk. Therefore, based on the foregoing empirical outcomes, this study recommends among others that stakeholders in Nigeria’s manufacturing industry should avoid relying on grey director board size or their overlap function with risk committees as standalone levers for managing idiosyncratic risk, as these variables showed no significant direct effect. Instead, emphasis should be placed on strengthening more effective governance structures.
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