Board Size and Independence Signals Into Profitability of Deposit Money Banks

Abstract This study investigates the impact of board size and board independence on the profitability of Nigerian deposit money banks over the period 2015 to 2024. Recognizing the critical role of corporate governance in shaping financial performance, the research focuses on thirteen banks, namely Access Bank Plc, EcoBank Plc, Unity Bank Plc, First City Monument Bank Plc, Fidelity Bank Plc, First Bank of Nigeria Plc, Guaranty Trust Bank Plc, Stanbic IBTC Bank Plc, Sterling Bank Plc, United Bank for Africa Plc, Union Bank Plc, Wema Bank Plc, and Zenith Bank Plc. Employing an ex-post facto research design, the study utilizes secondary data sourced from the annual reports of the sampled banks. The dependent variable, Return on Assets, is modeled as a function of board size and board independence. The study adopts panel econometric techniques, beginning with panel unit root tests to assess stationarity, followed by estimation using pooled Ordinary Least Regression Analysis, fixed and random effects models, model selection tests including the Hausman and Breusch-Pagan LM tests, panel cointegration analysis, and finally, a panel Autoregressive Distributed Lag approach with an error correction mechanism to capture both short- and long-run dynamics. Results indicate that both board size and board independence positively and significantly influence Return on Assets, with long-run adjustments suggesting a rapid realignment toward equilibrium following deviations. The findings affirm that governance structures not only provide oversight and strategic guidance but also serve as credible signals of managerial quality and firm stability. The study concludes that enhancing board independence and maintaining an optimal board size are critical for improving bank profitability. Recommendations include prioritizing the appointment of independent directors, optimizing board composition, reinforcing corporate governance enforcement by regulators, and fostering continuous capacity building for board members to ensure sustainable financial performance.