Board Independence and Solvency Risk: The Moderating Role of Non-Executive Directors in Nigerian Listed Firms

Abstract

This study examined board governance and solvency risk among 65 organisations registered on the NGX, focusing on the role of non-executive directors. The research used a quantitative design, using panel data from the annual reports of the selected companies over 2014-2023. The panel regression analysis showed that non-executive directors had a statistically significant impact on the solvency risk coefficient (-0.68; p-value: 0.002). The findings also showed that profitability negatively affected solvency risk (coefficient of 1.12 at the 1 percent significance level). At the same time, firm size had a positive and significant relationship with solvency risk (coefficient of 0.15). The model explained about 48 percent of the variation in solvency risk, indicating moderate explanatory power. The study concluded that board governance was effective, particularly with the presence of non-executive directors, as it improved financial discipline and reduced excessive risk-taking. Therefore, enhancing board independence may improve firms' financial stability and long-term sustainability.