The Impact of Corporate Governance and Bank Monitoring on Borrower Firms’ Financial Health in Nigeria

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This study, motivated by evidential corporate governance (CGV) irregularities and bank-borrower frosty relationship, examines the linkage of corporate governance index (CGVI) and bank monitoring to borrower firms’ financial health (FFH) among listed non-financial firms in Nigeria. The study uses firm-level data hand-extracted from annual reports of 48 non-financial firms over the period 2012–2021. Data are analysed using appropriate static panel regression models based on three diagnostic tests of heteroscedasticity, first-order autocorrelation and cross-sectional dependence. The results showed that CGVI has a significantly positive impact on the FFH but is identifiable more with Z-score and returns on assets than returns on equity as measures of FFH. A similar scenario is also empirically observed for the bank monitoring-FFH relationship. However, further analysis could not reveal that bank monitoring is a corporate force in the CGVI-FFH nexus. These findings call for a look into the concurrent representation of borrower firms’ board members on the boards of creditor banks. The study’s findings are also a pointer to the need for increased enforcement of compliance with CGV codes/guidelines. This study appears foremost in the relevant literature to test the moderating influence of bank monitoring in the linkage of CGV quality to FFH. In the Nigerian context, the study stands out among related studies post-unification of CGV guidelines, as available literature still focuses on the link between individual CGV mechanisms and FFH.