Internal Control Environment and Risk Asset Quality of Financial Institutions in Nigeria
Despite various government intervention efforts to safeguard the financial institutions in Nigeria, asset quality of firms in the institutions continues to deteriorate in view of the persistent weak control environment. This study was conducted to assess the effect of control environment (board size, audit committee size and board diversity) on the risk asset quality of financial institutions in Nigeria. The study adopted ex-post facto research design using panel data gleaned secondarily from the annual reports of the selected institutions spanning 2010-2021. The population consisted of all the eleven (11) categories of the financial institutions in Nigeria as at December 31, 2021. Four categories consisting of 38 elements were purposively sampled for the study. Data were analyzed using Feasible Generalized Least Square regression (FGLS). The results showed that board size and board diversity had negative and significant effect, while audit committee size had positive and significant effect on the risk asset quality of financial institutions in Nigeria. The study concluded that board diversity and board size have potentials to attenuate the spate of non-performing loans in Nigeria. It was recommended that, since the 2012 CBN directive advocating 30% gender parity is not narrowing the gender gap, there is need for mandatory legislation through an act of parliament to deepen gender inclusion in Nigerian laws as was the case in Norway and Spain. Also, increase in the number of board size should be sustained. Keywords: Board Size, Board Diversity, Control Environment, Audit Committee, Financial Institutions, Non-Performing Loan Ratio.