Moderating and Interacting Effects of Management Team Characteristics on Financial Performance
Abstract
This study investigated the influence of the management team characteristics on corporate governance mechanisms in predicting the financial performance of banks in Nigeria. The study employed dynamic panel models to examine the influence of four board attributes (size, independence, diligence, and diversity), management team characteristics (size and diversity), and two control variables (firm size and firm age) on financial performance, measured by the cost of capital, liquidity, and return on assets. These variables were selected and included in models based on the postulates of the agency theory and human capital theory.
The data series collected on each variable were sourced from the annual audited accounts and reports of 12 purposively selected listed banks over the years 2011 to 2023. The data were then analyzed using descriptive tools such as mean and standard deviation and panel regression techniques. The study employed the generalized method of moments (GMM) technique to estimate panel regression models after testing for normality, multicollinearity, heteroscedasticity and endogeneity problems.
The panel regression results on the relationship between management team characteristics and financial performance showed that management team size had a significant positive effect on cost of capital and liquidity. Again, management team size had a significant positive effect on cost of capital while both size and diversity of management team had a significant positive and negative effect, respectively on liquidity. Moreover, the way the board attributes affected financial performance changed over the size and diversity of management team. Management team size played a moderating role in increasing the negative effect of board independence on liquidity, with negative net effect in modulating the effect of board size on cost of capital and positive net effect in moderating the effect of board diligence on return on assets. Similarly, management team diversity significantly increased the negative effect of board diversity on cost of capital, increasing the negative effect of board diligence on liquidity, and made board independence to have a significant negative effect on return on assets, with a positive net effect from the relevance of management team diversity modulating the effect of board size and board diversity on liquidity.
The study concluded that effective corporate governance practices, coupled with a diverse sizeable management team, are pivotal in driving positive financial outcomes for listed banks in Nigeria. Its implications for the financial objectives of the banks, oversight function of the board of directors, and regulations were highlighted.
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