Moderating Role of Board Independence on the Relationship between Financial Risk and Profitability of listed Oil and Gas companies in Nigeria

Abstract

This study examines the moderating effect of board independence on the relationship between financial risk and profitability of listed oil and gas companies in Nigeria. Employing a longitudinal research design, the study covers the period from 2010 to 2024, focusing on a population of nine listed oil and gas companies, all of which were included in the analysis using census sampling. The financial risk variables considered include credit risk, liquidity risk, foreign exchange risk, and interest rate risk, with return on equity (ROE) serving as the measure of profitability. Using Random Effects regression analysis, the findings reveal that board independence significantly moderates the effects of financial risks on profitability. Specifically, board independence strengthens the negative effect of credit risk, reverses the adverse impact of foreign exchange risk into a positive influence, and amplifies the positive effect of interest rate risk. Liquidity risk, while negatively associated with profitability, did not show a statistically significant moderating effect at the 5% level. Based on these findings, the study recommends that companies enhance board independence, strengthen risk management strategies, integrate governance into financial risk policies, and provide continuous training for independent directors to improve oversight and strategic decision-making. The results underscore the critical role of corporate governance in mitigating financial risks and enhancing firm profitability in the Nigerian oil and gas sector.