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Influence of Board Size on the Financial Performance of Listed Companies in Nigeria

Abstract

Board size is an important corporate governance characteristic because the number of directors serving on a company's board can influence the quality of strategic decision-making, managerial monitoring, resource allocation, and overall corporate performance. Board size refers to the total number of directors constituting the board of directors of a company. An appropriately structured board can provide diverse expertise, experience, knowledge, professional networks, and oversight capabilities that may contribute to improved organizational performance. However, excessively large boards may experience coordination difficulties, slower decision-making, communication challenges, and potential conflicts among directors, while very small boards may lack sufficient diversity of skills and perspectives. Financial performance represents the extent to which a company effectively utilizes its resources to generate earnings and create value for shareholders. In Nigeria, listed companies operate in an increasingly challenging economic environment characterized by inflation, exchange rate volatility, high operating costs, changing interest rates, regulatory developments, and competitive pressures. These conditions have increased the importance of effective corporate governance structures capable of supporting sound strategic and financial decisions. Regulatory institutions such as the Financial Reporting Council of Nigeria (FRCN), the Securities and Exchange Commission (SEC), and the Nigerian Exchange Group (NGX) promote corporate governance practices designed to strengthen board oversight, accountability, transparency, and investor protection. Despite these regulatory initiatives, questions remain regarding the optimal board structure and whether differences in board size contribute to variations in the financial performance of listed companies. Although previous studies have examined board characteristics and corporate performance, empirical evidence regarding the influence of board size on the financial performance of listed companies in Nigeria remains limited and inconclusive. Against this background, this study investigates the influence of board size on the financial performance of listed companies in Nigeria. The study is anchored on Agency Theory, Resource Dependence Theory, and Stewardship Theory. Agency Theory suggests that an effective board provides oversight of management and reduces agency conflicts between managers and shareholders. Resource Dependence Theory explains that a larger and appropriately constituted board may provide access to diverse knowledge, expertise, resources, networks, and external relationships that can improve organizational performance. Stewardship Theory suggests that directors can act as responsible stewards of corporate resources and work collectively to achieve organizational objectives and enhance shareholder value. Collectively, these theoretical perspectives provide a comprehensive framework for explaining the relationship between board size and financial performance of listed companies in Nigeria. The study adopts a quantitative research design using a structured questionnaire administered to board members, chief executive officers, chief financial officers, finance managers, accountants, company secretaries, internal auditors, external auditors, investment analysts, and other professionals involved in corporate governance and financial management within selected listed companies in Nigeria. A stratified random sampling technique will be employed to ensure adequate representation of companies operating in the financial services, manufacturing, consumer goods, industrial goods, oil and gas, telecommunications, agriculture, healthcare, and other sectors listed on the Nigerian Exchange Group (NGX). Board size will be measured using the total number of directors on the board, board composition, diversity of board expertise, frequency of board participation, and adequacy of board membership relative to organizational needs, while financial performance will be measured using Return on Assets (ROA), Return on Equity (ROE), net profit margin, earnings per share, revenue growth, and overall profitability. Primary data collected from respondents will be analyzed using descriptive statistics to summarize respondents' demographic characteristics and perceptions regarding board size and financial performance. Structural Equation Modeling (SEM) will be employed to examine the influence of board size on financial performance. The measurement model will be evaluated using Cronbach's Alpha, Composite Reliability (CR), Average Variance Extracted (AVE), and Confirmatory Factor Analysis (CFA) to establish the reliability and validity of the research instrument. Additional diagnostic tests, including multicollinearity assessment, common method bias analysis, and model fit indices such as the Comparative Fit Index (CFI), Tucker-Lewis Index (TLI), Root Mean Square Error of Approximation (RMSEA), and Standardized Root Mean Square Residual (SRMR), will be conducted to ensure the adequacy, consistency, reliability, and robustness of the structural model. The study anticipates that board size will have a significant influence on the financial performance of listed companies in Nigeria. An appropriately sized board is expected to provide sufficient diversity of knowledge, professional expertise, industry experience, strategic insight, and corporate networks, thereby improving managerial oversight and the quality of strategic decisions. A well-structured board may also enhance risk management, resource allocation, financial monitoring, and accountability, consequently contributing to improved corporate profitability and shareholder value. However, excessively large boards may create coordination problems, slower decision-making, communication difficulties, and reduced individual accountability, potentially weakening financial performance. Conversely, very small boards may lack the range of skills, expertise, and perspectives necessary to effectively monitor management and respond to complex business challenges. Therefore, the study expects that board size, when appropriately aligned with the complexity and requirements of the company, will contribute significantly to financial performance, while inappropriate board size may adversely affect corporate efficiency and profitability. This study is expected to make significant theoretical and empirical contributions to the literature on corporate governance, accounting, corporate finance, and financial performance by providing comprehensive evidence on the relationship between board size and the financial performance of listed companies in Nigeria. Unlike previous studies that broadly examined corporate governance mechanisms, this research specifically evaluates board size as a determinant of financial performance using primary data and Structural Equation Modeling (SEM). The findings will provide valuable insights for the Financial Reporting Council of Nigeria (FRCN), the Securities and Exchange Commission (SEC), the Nigerian Exchange Group (NGX), listed companies, board directors, investors, professional accounting bodies, policymakers, regulators, and academic researchers regarding the importance of appropriate board composition and size. The study will also provide evidence-based recommendations for determining suitable board structures, improving board effectiveness, strengthening director accountability, enhancing governance practices, and ensuring that board size contributes effectively to sustainable financial performance among listed companies in Nigeria.

Keywords: Board size, financial performance, listed companies, corporate governance, board composition, agency theory, resource dependence, profitability, Structural Equation Modeling (SEM), Nigeria.