Effects Of Corporate Governance and Financial Leverage of Quoted Deposit Money Banks in Nigeria

Abstract

This study examines the effect of corporate governance mechanisms on the financial leverage of quoted Deposit Money Banks (DMBs) in Nigeria over the period 2015–2025. Specifically, it investigates the influence of board size, board independence, board composition, gender diversity, and age diversity on leverage levels of listed commercial banks in Nigeria. The study employs a descriptive research design using panel data from 15 quoted DMBs listed on the Nigerian Exchange Group over eleven years (2015–2025). Secondary data were extracted from the annual reports and accounts of the sampled banks. Panel regression models (fixed and random effects) were utilized for data analysis, with the Hausman test applied to determine the most appropriate model specification. Diagnostic tests for heteroskedasticity, serial correlation, and multicollinearity were also conducted. The empirical findings reveal that board size has a significant and positive effect on financial leverage (debt-to-equity ratio) at β = 0.1069 (P-value = 0.0028), consistent with the agency theory perspective that larger boards may facilitate greater debt utilization. Board independence also demonstrates a significant and positive effect on the debt-to-equity ratio at β = 0.0157 (P-value = 0.0000). Furthermore, gender diversity (β = 10.5572; P-value = 0.0000) and age diversity (β = 0.0741; P-value = 0.0132) are found to have significant positive effects on leverage decisions, suggesting that diverse boards are better equipped to assess and manage financial risks. The findings support the Trade-Off Theory, indicating that while high leverage may reduce performance, strong governance mechanisms can mitigate its negative effects. The study provides valuable insights for policymakers, regulators, bank executives, and investors regarding the governance-leverage nexus in the Nigerian banking industry. It extends previous research by incorporating recent data (2015–2025) and multiple governance variables, offering contemporary empirical evidence on the governance-leverage relationship in the Nigerian banking sector during a period of significant regulatory reforms and recapitalization efforts.