Research Article

IMPACT OF BOARD INDEPENDENCE, BOARD RISK MANAGEMENT AND BOARD FOREIGN DIVERSITY ON FINANCIAL DISTRESS OF MANUFACTURING FIRMS LISTED ON THE NIGERIAN EXCHANGE GROUP

Aliyu Sanusi1*, Muhammed Alhaji ABUBAKAR2
1 Department of Business Management, Faculty of Economics and Management Sciences, Bayero University, Kano - Nigeria
2 Department of Business Management Bayero University, Kano.
* Corresponding author: aliyusanusi909@gmail.com
Published: Dec, 2025
DOI: 10.67894/bbr.2025.2mxi1prf
Pages: 131-156
Views: 16
Downloads: 5

Abstract

This study was motivated by the observed persistent financial distress confronting the manufacturing sector, a phenomenon that has emerged as a critical concern in Nigeria and other developing economies. Given the sector's fundamental contribution to national development, understanding the underlying causes and implications of financial distress remains imperative. Its primary objective was to investigate how corporate governance mechanisms affect the likelihood of financial distress of manufacturing firms listed on the Nigerian Exchange Group (NGX). The research used agency theory and employed a quantitative longitudinal research design, using data extracted from the audited annual financial reports of listed manufacturing firms over an eleven-year period from 2014 to 2024. The study focused on a population of all eighty (80) manufacturing firms listed on the NGX as at 31st December, 2024. A purposive sampling technique was applied, investigating 40 of these firms based on complete audited annual financial reports published on the NGX. The descriptive statistic and pooled OLS regression were used for the data analysis. The pooled OLS regression results reveal that board risk management (β = 15.858, p < 0.001) and board foreign diversity (β = 34.636, p < 0.001) significantly mitigate financial distress, with board foreign diversity demonstrating the strongest protective effect among all governance mechanisms examined. Conversely, board independence (β = 1.628, p = 0.882) show no statistically significant effects on financial distress. The model explains 11.4% of variance in financial distress (R² = 0.102, p < 0.001), with control variables firm size and firm age demonstrating significant negative relationships with distress. This study recommends that manufacturing firms should establish mandatory independent risk management committees and pursue strategic board internationalization. While the investors and financial analysts should incorporate governance-weighted investment frameworks. The regulatory bodies (SEC, NXG, FRCN) should mandate board-level risk management committees, create incentives for board internationalization, develop early warning systems and integrate governance into industrial policy. The study contributes to corporate governance literature and offers actionable insights for policymakers, corporate boards, and investors that establishing dedicated risk management committees and pursuing board internationalization represent the most promising pathways for preventing financial distress among Nigerian manufacturing firms. Further, this study's novelty lies in its comprehensive eleven-year analysis (2014–2024), which allows for an in-depth assessment of financial distress trends, policy impacts, and government interventions within Nigeria's manufacturing sector. 

Keywords

Financial Distress Board Independence Board Risk Management Board Foreign Diversity Grover‘s G-Score Model.

References

  1. Abubakar, A. A. (2023). Corporate Failure: Are Listed Firms in Nigeria on the Verge of Demise? Analyzing Selected Food and Beverages Firms Using Springate's Model and Grover's Model.
  2. Affes, W. & Jarboui, A. (2023). The Impact of Corporate Governance on Financial Performance: A Cross-Sector Study. International Journal of Disclosure and Governance.
  3. Al-Naim, A. S., Aljughaiman, A. A., Almulhim, A. A., & Alosaimi, A. K. (2025) The influence of foreign, busy board members, and gender diversity on firm bankruptcy. Cogent Business & Management, 12(1), 2458158. https://doi.org/10.1080/23311975.2025.2458158
  4. Ali, S., Ali, S., Jiang, J., Hedvicakova, M., & Murtaza, G. (2022). Does Board Diversity Reduce the Probability of Financial Distress? Evidence from Chinese Firms. Front. Psychol, 13:976345. https://doi.org/10.3389/fpsyg.2022.976345
  5. Ali, S., Rehman, R., Yuan, W., Ahmad, M. I. & Ali, R. (2022). Does Foreign Institutional Ownership Mediate the Nexus between Board Diversity and the Risk of Financial Distress? A Case of an Emerging Economy of China. Eurasian Business Review, Springer; Eurasia Business and Economics Society, 12(3), 553-581. https://doi.org/10.1007/s40821-021-00191
  6. Anderson, K. & Smith, J. (2023). Leverage and Financial Distress: New Evidence. of Financial Studies, 32 (1), 32-45.
  7. Anderso, R., Lee, J., & Thompson, S. (2021). Board Diversity and Global Strategic Decision-Making: A Multinational Study. Journal of Academy of Management, 64 (3), 687-712.
  8. Beasley, M., Blay, A., Lewellen, C. & McAllister, M. (2023). Tempering Financial Reporting Risk through Board Risk Management. Journal of Risk and Financial Management, 16(491). https://doi.org/10.3390/jrfm16120491
  9. Bebchuk, L. A. & Weisbach, M. S. (2019). The State of Corporate Governance Research. Review
  10. Begum, M., Sarker, N. & Nahar, K. (2023). The Impact of Corporate Governance Attributes on Financial Distress among the Listed Pharmaceuticals Industry of Bangladesh. International Journal of Economics and Financial Issues.13 (6), 155-167. https://doi.org/10.32479/ijefi.15096
  11. Bello, M. A. (2019). Ownership structure and stock market reaction to seasoned equity offerings by firms in Nigeria. Sahel Analyst: Journal of Management Sciences, 17(4): 15-28. Available online @ www.sahelijournalsonline.org.ng
  12. Bello, M. A., Bala, A.K. & Falola, J.A. (2016). The Relevance of Financial Ratio Analysis in Predicting Business Failures in Nigeria: A Study of Selected Companies, Abuja Journal of Business and Management 2 (5), 21-28. Available online @ www.abujajournalofbusinessandmanagement.org.ng
  13. Bello, M. A., Kurfi, A. K., & Tijjani, B. (2021). Corporate governance and stock market reaction to seasoned equity offering announcements by firms in Nigeria. Malaysian Management Journal, 25(4), 73–98. https://doi.org/10.32890/mmj2021.25.4
  14. Binwai, P. & Mustapha, A. I. (2024). Corporate Governance Mechanisms and Financial Distress Likelihood: Evidence from Listed Consumer Goods Companies in Nigeria. International Journal of Research in Commerce and Management Studies, 6 (2), 110-125. https://doi.org/10.38193/IJRCMS.2024.6210
  15. Bureau Labor Statistics (2022). Employment, Hours, and Earnings from the CES Survey.
  16. Bravo-Urquiza, F., & Moreno-Ureba, E. (2021). Does Compliance with Corporate Governance Codes help to Mitigate Financial Distress?. Research in International Business and Finance, 55, 101344. https://doi.org/10.1016/j.ribaf.2020.101344
  17. Candradewi, R. M. & Rahyuda, H. (2021). Effect of Financial Indicators, Corporate Governance and Macroeconomic Variables on Financial Distress of Manufacturing Companies listed in Indonesian Stock Exchange (IDX) for the Period 2016-2018. Jurnal Ekonomi Kuantitatif Terapan, 14 (1), 145-172.
  18. Carter, D. A. et al. (2003). Corporate Governance, Board Diversity and Firm Value. Financial Review, 38 (1), 33-53.
  19. Chen, Y., & Li, J. (2021). Foreign Directors and Corporate Innovation: Evidence from Chinese Firms.
  20. Destatis (2022). Manufacturin Sector in Germany.
  21. Ebimobowei, A., Godspower, D. & Odinakachi, E. E. (2024). Firm Attributes and Corporate Financial Distress of Listed Manufacturing Firms at the Nigeria Exchange Group, British Journal of Multidisciplinary and Advanced Studies: Business and Management Sciences, 5 (1), 16-44. https://doi.org/10.37745/bjmas.2022.0391
  22. Etomi, G. & Pamers (2019). Analysis of the Nigerian Code of Corporate Governance (NCCG) 2018.
  23. Ezeani, E. J., Okonkwo, A. U., & Abdulrazaq, M. (2024). Foreign Board Membership and Corporate Outcomes in Nigeria: A Sectoral Analysis. Journal of Corporate Governance in Emerging Economies, 7(1), 22-39.
  24. Eze, M. N. & Akaegbobi, G. N. (2023). Effect of Corporate Leadership Diversity on Financial Distress of Selected Manufacturing Firms in Nigeria. International Journal of Research Publication and Reviews, 4 (6), 1-11. www.ijrpc.com
  25. Fama, E. F. & Jensen, M. C. (1983). Agency Problems and Residual Claims. Journal of Lwa and Economics, 26 (2), 327-349.
  26. Fiscienthar, Y. (2021). The Effect of Managerial Ownership, Institutional Ownership and Independent Commissioners on Financial Distress. International Journal of Management and Commerce Innovations, 9 (1), 411-422.
  27. Galal, S. (2025). Contribution of the Industrial Sector to the Gross Domestic Product (GDP) in Africa as of 2023, by Country. Retrieved from: https://www.statista.com/statistics/1265152/industry-sector-as-a-share-of-gdp-in-africa-by-country/
  28. Galal, S. (2025). Value Added of the Manufacturing Sector to the Gross Domestic Product (GDP) in South Africa from 2017 to 2024. Retrieved from: https://www.statista.com/statistics/1546889/value-added-of-manufacturing-to-gdp-in-south-africa/
  29. Gao, H., Harford, J. & Li, K. (2020). Risk Management Independence and Financial Distress. Journal of Accounting and Public Policy, 39 (2), 153-172.
  30. Hameed, R. A., Kurfi, A. K., & Bello, M. A. (2020). Determinants of financial performance: Evidence from lease manufacturing companies in Nigeria. Gusau Journal of Accounting and Finance, 1(1), 1–10.
  31. Hassan, M. & Kim, Y. (2020). Foreign Board Diversity and Firm Performance: Evidence from Emerging Markets. Corporate Governance: An International Review, 30 (2), 145-168.
  32. Hassan, W. S., Gul, S., Naveed, Ahmed, M. & Tariq, M. (2023). Effect of Corporate Governance on Financial Distress: Evidence from Pakistan. International Journal of Business and Management Sciences, 4 (2), 109-124. http://www.ijbms.org
  33. Humairoh, F. & Nurulita, S. (2022). The Effect of Corporate Governance on Financial Distress. Jurnal Riset Akuntansi Kontempore, 14 (2), 237-242. https://www.researchgate.net/publication/366005948
  34. Ibrahim, A. & Oloyede, O. (2020). Corporate Governance and Financial Distress in Nigerian Manufacturing Firms. Journal of Business Ethics, 163 (2), 257-273.
  35. Ibrahim, Y., & Musa, A. (2023). The Role of Regulatory Frameworks in Curbing Financial Distress: Insights from Nigeria's listed Firms. African Journal of Accounting, Economics, Finance and Banking Research, 19(1), 33-48.
  36. Ibrahim, M. T., & Yaya, S. A. (2022). Risk Management Practices and Distress Prediction in listed Nigerian Firms. West African Journal of Business Research, 10(4), 54–70.
  37. Ikpesu, F., Vincent, O., & Dakare, O. (2022). Effect of Board Characteristics and Risk Management Practices on the Financial Performance of listed Non-Financial Firms in Nigeria. Academia.edu, 86914469.
  38. Isayas, Y. N. (2021). Financial distress and its determinants: Evidence from insurance companies in Ethiopia. Cogent Business and Management, 8, 1951110. http://doi.org/10.1080/23311975.2021.1951110
  39. Jensen, M. C. (1993). The Modern Industrial Revolution, Exit and the Failure of Internal Control Systems. Journal of Finance, 48 (3), 831-880.
  40. Jensen, M. C., & Meckling, W. H. (1976). Theory of the Firm: Managerial Behavior, Agency Cost, and Ownership Structure. Journal of Financial Economics, 3, 305–360.
  41. Jhunjhunwala, N. (2024). Board Independence and Financial Distress: Insights from Distress: Insights from India. Journal of Economics and Finance, 15 (5), 33-38. http://doi.org/10.9790/5933-1505063338
  42. Kajola, S. O., Oyewole, S. A. & Umar, M. (2022). Risk Management Independence and Financial Performance: Evidence from Nigeria. Journal of Risk and Financial Management, 13 (2), 1-15.
  43. Kamau, C. G., Oyoti, R. & Muzungu, B. K. (2023). Effect of Corporate governance on Financial Distress among the Firms Listed at Nairobi Securities Exchange. South Sahara Multidisciplinary Journal, 1 (1), 1-7.
  44. Keith, K. D. (2024). Research Methods in Psychological Sciences: Quantitative Approaches (6th ed.). New York, NY: Springer.
  45. Kembi, L. D., Morasa, J. & Wokas, H. R. N. (2024). Comparative Analysis of Models (Altman, Grover, Zmijewski, Springate) in Predicting Company Bankruptcy Potential in the Non-Cyclical Consumer Sector. The Contrarian: Finance, Accounting and Business Research, 3 (2), 180-191. https://doi.org/10.58784/cfabr.165
  46. Khalil, M., Sultana, N., Kausar, A., & Shoukat, M. (2024). Nexus between Boardroom Independence and Firm Financial Performance: Evidence from South Asian Emerging Market. Humanities and Social Sciences Communications, 11(597), 1-10. https://doi.org/10.1057/s41599-024-02952-3
  47. Khan, N. & Kong, D. (2022). The Impact of Corporate Governance on Firm's Financial Distress: A Case Study of UK Based Firms. Journal of Advanced Research in Economics and Administrative Sciences, 3 (10), 2708-9320. https://doi.org/10.47631/jareas.v3i1.424
  48. Klein, A. (2020). Board Independence and Firm Performance: A Meta-Analysis. Journal of Management, 46 (4), 1411-1434.
  49. Lawal, A. I., Babajide, A. A., Somoye, R. O., & Ndako, U. B. (2022). The Impact of Board Independence on Firm Performance: Evidence from Nigeria. Cogent Business and Management, 9 (1), 2034954.
  50. Mani, A., Samuel, O. & Okpanachi, J. (2023). Board Independence and Firm Financial Performance: Evidence from Nigeria. International Journal of Research and Innovation in Social Science.
  51. Manufacturers Association of Nigeria (MAN) (2024). Retrieved from: https://nairametrics.com/2024/03/06/767-manufacturing-companies-shut-down-in-nigeria-350-billion-goods-unsold-in-2023
  52. Manufacturers Association of Nigeria (2024). Retrieved from: https://www.manufacturersnigena.org/?utm_source=perplexity
  53. Masulis, R. & Zhang, D. (2020). Foreign Director Participation and Firm Performance in Global Market. Journal of Financial Economics, 136 (1), 160-182.
  54. Ministry of Statistics and Program Implementation (2022). Retrieved from: http://mospi.nic.in/
  55. Mohsni, S. Otchere, K. & Shahriar, S. (2021). Board Gender Diversity, Firm Performance and Risk Taking in Developing Countries: The Moderating Effect of Culture. Journal of International Financial Markets, Institutions & Money, 73 (C). https://doi.org/10.1016/j.intfin.2021.101360.
  56. Muamar, Y. 2020. Sektor Manufaktur RI 2019 Lesu, 11 Saham Otomotif Ini Merana. CNBC Indonesia.
  57. Nayan, A. B., Illias, M. R., Ishak, S. S., Abdul Rahim, A. H. B. & Morat, B. N. (2024). Evaluating the Efficacy of Financial Distress Prediction Models in Malaysian Public Listed Companies. International Journal of Advanced and Applied Sciences, 11 (2), 1-7.
  58. Nigerian Gross Domestic Product Report (Q4 2021).
  59. Nigerian Stock Exchange (2023). Retrieved from: https://ngxgroup.com/exchange/trade/equities/listed-companies/
  60. Nursal, E. Z., Kristanti, F. T. & Murti, G. (2023). Effect of Financial Ratios, Macroeconomics, and Corporate Governance on Financial Distress. Asean International Journal of Business, 2 (1), 85-96. https://doi.org/10.54099/aijb.v2i1.462
  61. Ofori, E., Nyuur, R., & S-Darko, M. (2024). Board size, Board Expertise and the Financial Performance of listed Manufacturing Firms in Ghana: Does Board Commitment Play a Role? ResearchGate Publication, 379353789.
  62. Olaniyan, O. & Omotola, A. (2020). Corporate Governance and Financial Distress in Nigeria's Manufacturing Sector: A Review. Journal of Business and Economic Policy, 7 (1), 45-58.
  63. Rizaky, Z. A., & Dillak, V. J. (2020). Pengaruh rasio likuiditas, solvabilitas dan profitabilitas, dan umur perusahaan terhadap kondisi financial distress (studi pada perusahaan pertambangan di sub sektor pertambangan batu bara yang terdaftar di Bursa Efek Indonesia periode 2015-2018). eProceedings of Management, 7 (2). Google Scholar
  64. Shrader, C. B., et al. (1997). Strategic Alliances and Foreign Market Entry: An Empirical Analysis. Journal of International Business Studies, 28 (2), 267-286.
  65. Soesetyo, Y. (2023). Good Corporate Governance Mechanisms and Financial Performance in Controlling Financial Distress. International Journal of Business and Social Science, 3 (1), 14-26. https://doi.org/10.54099/aijbs.v3i1.542
  66. Statistical Analysis Software Market Report (2024). Statistical Analysis Software Market 2024-2031. Retrieved from: https://www.linkedin.com/pulse/statistical-analysis-software-market-2024-2031-rsqvc
  67. Statistics South Africa, (2022). Retrieved from: http://www.statssa.gov.za/
  68. Sule, S. Y. & Meshack, I. (2022). Effect of Risk Management Committee on the Financial Distress of Listed Industrial Goods Firms in Nigeria; Altman Z-Score Approach. Global Research Journal of Business Management, 2 (1), 48-61.
  69. The Guardian Newspaper's Report (2018). Nearly Half a Million UK Firms Facing Significant Financial Distress. Retrieved from: https://www.theguardian.com/business/2018/jan/17/nearly-half-a-million-uk-firms-facing-significant-financial-distress
  70. Theresa, S. & Pradana, M. N. (2022). Pengaruh Profitabilitas, Arus Kas, Good Corporate Governance dan Umur Perusahaan Terhadap Financial Distress. Jurnal EMBA: Jurnal Riset Ekonomi, Manajemen, Bisnis dan Akuntansi, 10 (1), 250-259. Google Scholar
  71. Umar, M., Oyewole, S. A., & Ibrahim, A. A. (2020). Corporate Governance and Financial Distress in Nigeria: A Review of the Literature. Journal of Business and Finance, 14 (2), 1-18.
  72. United Nations Industrial Development Organization (UNIDO) (2020). Industrial Development Report.
  73. United States of America Bureau of Labor Statistics (2025). Industries at a Glance. Retrieved from: https://www.bls.gov/iag/tgs/iag31.htm?utm_source=perplexity
  74. Walela, T., Mabuza, V. & Ngwenya, S. (2022). Corporate Financial Distress: A Study of its Causes, Consequences and Preventive Models.
  75. Wang, Y. & Chen, C. (2020). Board Independence and Financial Distress: Evidence from China. Journal of Corporate Finance, 62 (101583).Wati, I. C. & Kasingku, F. J. (2022). Th Role of Corporate Governance and Financial Indicators in Predicting the Financial Distress. Jurnal Ekonomi, 11 (3), 1255-1267. http://ejournal.seaninstitute.or.id/index.php/Ekonomi
  76. World Bank Group (2025). Manufacturing, Value Added (% of GDP) All Countries and Economies. Retrieved from: https://data.worldbank.org/indicator/NV.IND.MANF.ZS
  77. Yahaya, O. A., & Yakubu, E. (2022). Risk committee's Influence on Enterprise Risk Management. Journal of Risk and Financial Management, 15 (4), 2-15. https://doi.org/10.3390/jrfm15020008x
  78. Zhang, M., & Li, H. (2023). "Digital Transformation in Manufacturing Firms: A Comprehensive Framework for Industry 4.0 Implementation." Journal of Operations Management, 41(3), 156-178.
How to Cite

Sanusi, A., & ABUBAKAR, M. A. (2025). IMPACT OF BOARD INDEPENDENCE, BOARD RISK MANAGEMENT AND BOARD FOREIGN DIVERSITY ON FINANCIAL DISTRESS OF MANUFACTURING FIRMS LISTED ON THE NIGERIAN EXCHANGE GROUP. Bayero Business Review, 9(2), 131-156. https://doi.org/10.67894/bbr.2025.2mxi1prf

A. Sanusi, and M. A. ABUBAKAR, "IMPACT OF BOARD INDEPENDENCE, BOARD RISK MANAGEMENT AND BOARD FOREIGN DIVERSITY ON FINANCIAL DISTRESS OF MANUFACTURING FIRMS LISTED ON THE NIGERIAN EXCHANGE GROUP," Bayero Business Review, vol. 9, no. 2, pp. 131-156, December 2025. doi: 10.67894/bbr.2025.2mxi1prf

Share this article:
Facebook X / Twitter LinkedIn
Download PDF View Full Text (PDF) Back to Articles