The Relationship between Board Power and Corporate Diversification in the Nigerian Capital Market

Abstract

The concentration of power within corporate boards has significant implications for strategic decisions, including corporate diversification. However, empirical evidence on this relationship remains scarce, particularly in emerging markets such as Nigeria. This study investigates the relationship between board power and corporate diversification among firms listed on the Nigerian capital market. The purpose is to determine whether board dominance enhances or impedes diversification strategies that may influence firm value and risk. Using a panel dataset of 150 firms listed on the Nigerian Exchange between 2014 and 2023, the study adopts a quantitative approach. It employs fixed and random effects regression models to analyze the influence of board power-measured by board gender, board independence, and board size-on diversification, proxied by the number of subsidiaries. The findings reveal a significant positive relationship between board power and corporate diversification, suggesting that concentrated board authority may lead to risky strategies that do not limit diversification. Conversely, firms with more independent and balanced boards tend to pursue broader diversification strategies. The study is limited by its focus on publicly traded firms, excluding private firms, which may exhibit different governance dynamics. Despite this, the findings offer valuable insights for regulators, investors, and corporate governance practitioners by highlighting the need for balanced board structures that promote strategic flexibility. This study contributes to the literature by providing novel empirical evidence from a sub-Saharan African context and underscores the relevance of board composition in shaping firm strategy within emerging capital markets.

Keywords: audit quality, board power, corporate diversification, firm leverage, firm profitability, firm size