IIARD International Institute of Academic Research and Development

IIARD INTERNATIONAL JOURNAL OF ECONOMICS AND BUSINESS MANAGEMENT (IJEBM )

E-ISSN 2489-0065
P-ISSN 2695-186X
VOL. 11 NO. 3 2025
DOI: 10.56201/ijebm.vol.11.no3.2025.pg232.245

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An Assessment of the Effect of Risk Management Committee on The Financial Performance of Deposit Money Banks

Pheekwalah Yayirus Mohammed Usman

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Abstract

This study seeks to investigate the effect of Risk Management Committee (RMC) on the financial performance of Deposit Money Banks (DMBs) in Nigeria. Financial performance is judged to be a critical aspect of any organization and thus plays a pivotal role in determining the success and sustainability of such organizations. The study spanned from 2012 to 2022. Data for the study was sourced from secondary source through the financial statements and annual reports of the 7 selected publicly listed DMBs in Nigeria. Correlation/OLS regression analysis techniques were employed in analyzing the data so as to measure the relationship between the variables and effect of RMC indicated by its size, independence and meetings on financial performance of DMBs indicated by ROA and ROE. Findings revealed that RMC size has significant effect on financial performance of DMBs with a mean value of 0.0172 and p – value of 0.021. Furthermore, RMC independence and meetings with the mean value of -0.0049 and -0.0063 respectively were found to affect financial performance of DMBs negatively and insignificantly. The study recommends increasing number of women in the RMC and regular hosting of meetings to fulfil company’s objectives and improve its financial performance. Additionally, practitioners and policy formulators need to pay specific attention to RMC size, frequency of meetings and independent boards as a concern in building robust risk management committee. Introduction The success and sustainability of an organization are largely determined by its financial performance, which is a crucial component of every organization. Maintaining a solid financial performance is essential for the long-term survival and general economic stability of deposit money banks, which are the key financial intermediaries in Nigeria. Improving financial performance is the main objective of any profit-making firm. How well a business is doing in the marketpl

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(McKinsey & Company, 2021). The EUT is a fundamental concept in economics
and decision theory that provides a framework for understanding individual preferences and
decision-making under uncertainty. It has significant implications for risk management, as it
helps individuals and organizations evaluate and make decisions in situations where the
outcomes are uncertain and involve risks (Damanpour & Aravind, 2021). It assumes that
individuals are rational and have consistent preferences over outcomes.
The use of Expected Utility Theory in risk management extends beyond simple investment
decisions and can be applied to various domains, such as insurance, banking sector, loan
facilities, portfolio management, and project evaluation. It is imperative to note that EUT has
been subject to criticism and limitations. One major critique is that individuals often deviate




IIARD International Journal Of Economics And Business Management E-ISSN 2489-0065
P-ISSN 2695-186X Vol 11. No. 3 2025 www.iiardjournals.org online version





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Page 238
from the rationality assumptions of EUT, exhibiting behaviours such as risk aversion, risk-
seeking, or loss aversion. This led to the development of alternative decision theories, such as
Prospect Theory, which accounts for these behavioural biases.
The Agency Theory
The Agency theory also form the theoretical basis for this study. This theory establishes a
contractual relationship between the principal (owner/shareholders) and another agent
(managers) to act on behalf of the owners (Jensen & Meckling, 1976). Many a time, managers
are risk seekers and take actions that affect the firm’s financial performance based on their
desire for increased compensation. Corporate governance mechanisms were established to
reduce the agency problem that occurs in companies (Harrison & Harrell, 1993). In general,
from the standpoint of agency theory, the risk committee acts on behalf of the shareholders in
order to manage risk exposure.
Thus, the risk management committee's primary responsibility is to monitor management's
participation in riskier activities that may have affected the firm's objectives and to inform
management when such activities reach an unacceptable risk level that may impede the firm's
financial performance. Due to the fact that creating a risk management committee may enhance
the transparency of a firm by revealing more information about risk and providing better insight
into risks to shareholders, a risk management committee is recommended. As a result, having
an effective committee in a firm not only helps the board of directors, but it also helps to reduce
the number of agency problems that emerge in the organization. The agency theory stresses the
fact that risk management should line up the interest of shareholders and managers so as to
increase organizational performance.
Methodology
This study adopts an ex-post facto research design. The study population consists of all the 13
deposit money banks that are publicly listed on the Nigeria Stock Exchange (NSE) as at 31st
December, 2022. However, purposive sampling techniques was adopted to arrive at the sample
size of seven (7) deposit money banks.
Table 1: Working Population of the Study
S/N
Banks name
Date of incorp.
Date of listing
1
Access Holdings Plc
1989
1998
2
First Bank Nigeria Holdings Plc
1894
1971
3
Fidelity Bank Plc
1987
2005
4
Guaranty Trust Bank Holdings Company
Plc
1990
1996
5
United Bank for African Plc
1961
1970
6
Wema Bank Plc
1945
1990
7
Zenith Bank Plc
1990
2004
Source: NXG website (2022).
Furthermore, census sampling techniques was employed to adopt the entire working population
as the sample of the study. Panel data for the study was sourced from secondary source i.e
annual reports and financial statement of the selected DMBs. Correlation/ OLS regression




IIARD International Journal Of Economics And Business Management E-ISSN 2489-0065
P-ISSN 2695-186X Vol 11. No. 3 2025 www.iiardjournals.org online version





IIARD – International Institute of Academic Research and Development

Page 239
analysis techniques were employed in analysing the data so as to measure the relationship
between the variables and effect of RMC indicated by its size, independence and their activities
on financial performance of DMBs indicated by ROA and ROE. Additionally, post-estimation
tests such as heteroskedasticity, multicollinearity, and correlation tests were run to gain insight
into the data and determine the suitability of the regression method.
Results and Discussion
Robustness Test of Independent and Dependent Variables
This test was carried out to ensure the validity of all statistical inferences for the Study, in order
to assess the impact of distribution problems, in addition to the problems of outliers before
deciding on the appropriate statistical method for the study. These tests include
Multicollinearity, heteroscedasticity, and normality.
Multicollinearity Test
To check for the presence of multicollinearity between independent variables the study used
VIF (Variance Inflation Factors) to check whether the explanatory variables of the model used
for the study suffer from multicollinearity. The VIF in excess of 10 should be taken as an
indication of harmful multicollinearity and the result in Table 2 of the test shows that the
maximum VIF is 1.03 for risk management committee independence and the minimum VIF is
1.01 for risk management committee size and these are less than 10 which indicate absence of
multicollinearity.
Table 2: Variance Inflation Factor (VIF)
Source: author’s computation
Heteroskedasticity Test
The result of Breusch-pagan/Cook-weisberg test for heteroskedasticity in Table 5 reveals that
the data are heterogeneous is less than 5% level of significance. The figure below indicates that
the probability value of 0.000 is less than the critical value of 0.05 level of significance. Thus,
the study concludes that there is heteroscedasticity. According to the results of the tests for
heteroscedasticity none of the conditions needed to perform an OLS regression analysis could
be satisfied. As a result of the foregoing, the result of the robust OLS regression analysis served
as the basis for our test of Hypothesis.
Normality Test
All of the variables in appendix have significant values for the Shapiro-Wilk test (Prob>z) of
0.0000 (dependent variable and independent variables) except RMCS which is insignificant at
0.2866. The fact that Prob>z (0.00000) is always less than 0.05 indicates that all of the
variables' data significantly depart from a normal distribution. The earlier position of the
Variable
1/VIF
VIF
RMCS
0.9910
1.01
RMCI
0.9690
1.03
RMCM
0.9757
1.02
Mean VIF

1.02




IIARD International Journal Of Economics And Business Management E-ISSN 2489-0065
P-ISSN 2695-186X Vol 11. No. 3 2025 www.iiardjournals.org online version





IIARD – International Institute of Academic Research and Development

Page 240
heteroscedasticity test is consequently supported by this result. The study uses spearman
correlation for correlation matrix.
Hausman Test
The Hausman Test can be used to determine whether Fixed Effects Model or Random Effects
Model is more appropriate. To apply this test, the study estimated both the Fixed Effects and
Random Effects Models and compare the estimated coefficients using Hausman statistic. The
decision rule is to use Fixed Effects if the p-value is significant, if not use Random Effect. The
result in Table 5 revealed a p-value of 0.6193. Therefore, the Hausman test suggest the use of
Random Ef

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