Corporate Governance, Liquidity Risk, and Sustainable Growth Rate in the Nigerian Banking Industry

Abstract

Purpose: The objective of this study was to investigate the impact of board independence, liquidity risk management, and other bank-specific factors on the sustainable growth rate of banks in a developing country. Theoretical framework: The study relied on two major theories: the Agency Theory, which explored the conflicts of interest between owners and managers, and the Resources-based View Theory (RBV), which examined how banks utilised unique resources to achieve competitive advantages and sustain growth. Design/methodology/approach: The study analysed panel data from twelve banks listed on the Nigerian Stock Exchange from 2008 to 2021. This study utilised the Feasible Generalised Least Squares (FGLS) regression technique, chosen for its effectiveness in addressing serial correlation and heteroskedasticity, to examine the effect of various factors on the sustainable growth rate. Findings: The study found that the sustainable growth rate (SGR) of banks was significantly affected by the interaction between corporate governance variables and factors such as liquidity risk, dividend payout ratio, bank size, asset quality, and operating margin. Additionally, board independence and bank performance may not be enough to ensure a bank’s resilience in volatile conditions. Research, Practical & Social implications: The study illuminated previously neglected factors that affect the sustainable growth rate of banks. Bank boards and policymakers can utilise these insights to enhance governance structures, risk management practices, and regulatory frameworks. This enhanced comprehension can contribute to a more stable financial system, improving public confidence and economic stability. Originality/value: This study addresses a notable research gap by examining the influence of board independence and bank-specific factors on the sustainable growth rate of banks. Prior research has predominantly focused on the non-financial services industry, leaving this area understudied.