RISK FINANCING STRATEGIES AND CORPORATE GOVERNANCE MECHANISMS AS DRIVERS OF FINANCIAL SUSTAINABILITY AND OPERATIONAL SELF-SUFFICIENCY IN AFRICAN BANKING INSTITUTIONS

462 International Journal of Social and Educational Innovation Vol. 12, Issue 24, 2025 ISSN (print): 2392 – 6252 eISSN (online): 2393 – 0373 DOI: 10.5281/zenodo.17988741 RISK FINANCING STRATEGIES AND CORPORATE GOVERNANCE MECHANISMS AS DRIVERS OF FINANCIAL SUSTAINABILITY AND OPERATIONAL SELF-SUFFICIENCY IN AFRICAN BANKING INSTITUTIONS Kayode David KOLAWOLE (PhD) Department of Financial Intelligence, College of Accounting Sciences, University of South Africa [email protected] 0000-0002-6704-2673 Abstract This research paper focused on the impact of the risk financing policy, corporate governance systems, project success on the financial sustainability and operational self-sufficiency of the banking sector in Nigeria. The panel data of our deposit money banks and econometric analysis demonstrates that board independence, gender diversity are material determinants of financial sustainability and ownership concentration is beneficial to operational efficiency but poses a threat to minority shareholders. The dimensions of board is a curvilinear variable whereby moderate increase in board size facilitates oversight, however, beyond that, oversight is hindered. These results are in line with the agency and stakeholder theories and emphasize the need to have a balanced governance framework to address risk and create sustainable value within new financial systems. This paper concludes that good governance is not just a compliance instrument, but a strategic instrument of financial strength, competitiveness and sustainable development in emerging financial systems and this has policy implications of improved regulatory regimes on board and structure, disclosure of ownership and gender balance. Keywords: Corporate Governance, Risk Financing, Financial Sustainability, Operational Self-Sufficiency, Ownership Structure, Board Diversity. JEL Codes: G21, G32, G34, M14 International Journal of Social and Educational Innovation (IJSEIro) Volume 12/ Issue 24/ 2025 463 1. Introduction In emerging markets such as Nigeria, where weak institutional frameworks, concentrated ownership, and regulatory absence present systemic risks to financial institutions, the corporate governance issue has taken the spotlight in the discussion on the financial stability, organizational performance, and long-term sustainability, particularly in the banking sector (Kapil and Mishra (2019). The overall objective of this study is to integrate the effects of board size, board independence, gender diversity, and ownership structure on the sustainability of Nigerian DMBs, measured through financial sustainability and operational self-sufficiency, by applying econometric panel models that account for both firm-specific heterogeneity. Essentially, the paper seeks four specific objectives. The first research question is the effects of board size on financial sustainability of Nigerian DMBs, whereas there is no consensus in the literature on this (Sulemana et ak.,2025). Although there has been improved scrutiny on the corporate failures and financial crisis on the board size, gender diversity, and sharehold structure as solutions to financial sustainability and operational efficiency, there is no consensus in the literature on the effects (Sulemana et ak.,2025). Another significant governance variable is board size, and the literature indicates that larger boards can be positively (e.g., better oversight, more expertise and compliance with regulation) and negatively (e.g., inefficient decision-making, responsibility diffusion and poor monitoring) associated (Nguyen et al. 2021; Bokpin, 2010). In the Nigerian bank context, where the institutional voids tend to compound the governance risks, the question of whether the optimal board size to facilitate financial sustainability (as measured by return on assets) is important to explain the trade-off between inclusiveness and efficiency in governance structures. The second purpose is to look at how board independence affects operational self-sufficiency among Nigerian banks. The concept of board independence is commonly considered to be a governance tool that helps prevent managerial opportunism (Iqbal et al., 2015) since independent directors offer objective control and make sure that managers and stakeholders are aligned. Empirical evidence suggests that independent directors increase the resilience of banks by enhancing risk monitoring and preventing opportunistic behavior (Ayodeji & Okunade, 2019). In Nigeria, where insider lending and ownership dominance are prevalent, board independence is particularly relevant for enhancing operational self-sufficiency, which highlights how governance reforms can reduce agency conflicts and enhance internal efficiency. The third objective is to examine the impact of gender diversity on financial sustainability. Gender International Journal of Social and Educational Innovation (IJSEIro) Volume 12/ Issue 24/ 2025 464 inclusiveness in boardrooms has received global recognition as a driver of innovation, better decision-making, and ethical governance (Kapil & Mishra, 2019), while empirical evidence has shown that gender-diverse boards positively influence risk management, sustainability disclosures, and long-term value creation (Chang et al., 2024). For Nigeria, where women remain underrepresented in leadership positions, investigating the impact of gender diversity on bank performance provides insight into whether regulatory measures such as gender quotas are warranted (this objective is timely, given that recent Central Bank of Nigeria guidelines emphasize diversity as part of corporate governance best practices [CBN 2022]). The fourth objective is to explore the effect of ownership structure on both financial sustainability and operational efficiency. Ownership concentration, for example, often determines the level of managerial discipline and strategic orientation in banks, but while concentrated ownership may provide effective monitoring by block shareholders, entrenchment risks and minority shareholder interests may be undermined (Bellato et al., 2024). In Nigeria, where family and institutional ownership are common, the effect of ownership structure on governance quality is of significant interest as it helps to understand whether concentrated or dispersed ownership is more beneficial to enhance the long-term sustainability of banking institutions in emerging markets. The outcome provides valuable insights for regulators, investors, and bank managers to strengthen governance frameworks for long-term stability. 2. Empirical Review The relationship between corporate governance and sustainability has been extensively explored, which generally indicates that sound governance structures promote financial and non-financial sustainability by aligning managerial decisions with long-term institutional goals. In the case of e.g. Garcicia-Sanchez et al. (2015) it was claimed that the quality of governance is positive on sustainability disclosures, which raises stakeholder trust, which is at the same time compatible with the agency theory stating that good governance lowers agency costs and makes the managerial and shareholder interests congruent. This has been affirmed through other studies that have revealed that the governance practices including the independence and diversity in the board of directors are significant drivers of bank sustainability performance (Naciti, 2019; Buallay, 2019). Research on board structure has been extensive; for example, Fernandes et al. (2018) found that board size and independence matter significantly for the efficiency of European banks, International Journal of Social and Educational Innovation (IJSEIro) Volume 12/ Issue 24/ 2025 465 while Olowofela et al. (2025) found similar effects in emerging markets, and in the Nigerian context, Gwaison and Maimako (2021) and Adekoya (2014) observed that larger and more independent boards tend to result in stronger financial sustainability due to better oversight and monitoring. Gender diversity on boards has also received more attention and research, including Post and Byron (2015) and Conyon and He (2017), has shown that gender-diversified boards lead to better strategic decisions and financial performance, although recent studies by Orazalin and Mahmood (2021) found that female presence on boards is positively related to environmental and social performance in banks Ownership structure has also been a recurring theme in corporate governance research, with studies suggesting that concentrated ownership may strengthen or weaken sustainability outcomes depending on the institutional context (Shleifer and Vishny, 2017; Arslan & Alqatan, 2020). John and Olutoye (2015) showed that ownership concentration can sometimes hamper transparency, while Yusuf (2025) observed that institutional ownership tends to enhance governance quality and improve sustainability reporting, confirming the mixed empirical evidence on the role of ownership, underscoring the importance of institutional and regulatory environments. Operational efficiency, which is typically measured by operational selfsufficiency, has also been associated with governance structures; empirical studies by Bokpin (2010) in Ghana Burgstaller and Diet (2023) in Spain showed that effective governance mechanisms contribute to covering operating expenses with internally generated income, a finding confirmed by Awotomilusi & Ajoloko (2022) in Nigeria, which also demonstrated that risk governance contributes to operational sustainability, and Erin et al. (2020), which demonstrated that risk governance leads to resilience, which is one of the major contributors to operational sustainability. More recent works have expanded the topic of investigation to sustainability performance with studies like Buallay (2019) and Hussain et al. (2018) demonstrating the role of governance mechanisms including board committees and diversity in determining ESG performance, studies like Iyoha et al. (2021) and Okorie and Ebere (2025) finding that the quality of governance is important in promoting environmental sustainability in Chinese banks, and studies like Li et al. Compelling insights can also be found on cross-country comparative studies; e.g., Tran et al. (2020) found that governance structures are important determinants of bank sustainability in Southeast Asia, Gerged et al. (2021) reported similar trends in Middle Eastern countries, Bello (2025) found out that board diversity is an important determinant of International Journal of Social and Educational Innovation (IJSEIro) Volume 12/ Issue 24/ 2025 466 sustainability disclosure in African banks and Basuony et al. (2023) correlated the board structure and sustainability orientation with firm performance in 40 countries, which also supports the of governance mechanisms in driving sustainability. Empirical research has also increasingly focused on the digitalization of banking governance and sustainability practices, with Chen and Hao (2022) reporting that digital transformation enhances the moderating effect of governance on sustainability, Sulemana et al. (2025) reporting that digital platforms enhance sustainability disclosures, Oyerogba et al. (2024) reporting that Nigerian banks leveraging digital tools in governance are more likely to achieve sustainability in both financial and operational dimensions, and Tran et al. (2020) demonstrating that integrating fintech innovations with governance contributes to improved sustainability in African financial institutions. The findings, however, are still contextdependent, reflecting institutional, cultural, and regulatory differences across regions. The majority of studies agree that sound governance is essential to advancing sustainability goals, and recent works have underscored the importance of digitalization and ESG-focused governance as new frontiers in banking sustainability. 3. Methodology 3.1. Theoretical Framework A combination of agency theory, pecking order theory and resource-based view provides the theoretical base of the study of the relationship between risk financing strategies and project success within the construction industry. The agency theory gives an insight into the extent to which the financing decisions can reduce the conflict between the managers and the owners, especially in the high-risk industry such as construction. Jensen and Meckling (1976) highlighted that managerial risk-averse financing policies might exist unless there is alignment of ownership, therefore, ownership structure is related to finance performance. This agency relationship can be modeled as a utility maximization with the expected utility U of owner being dependent on the project returns R and risk 𝜎2, adjusted for managerial effort 𝑒: 𝑈 = 𝐸(𝑅)−1 2𝜆𝜎2+𝛽𝑒 (1) where 𝜆 is the risk aversion coefficient and 𝛽 captures the marginal benefit of managerial effort. A higher alignment of interests through ownership or governance reduces agency costs, increasing the probability of project success. International Journal of Social and Educational Innovation (IJSEIro) Volume 12/ Issue 24/ 2025 467 The pecking order theory further explains financing preferences in project-based industries, where internal funds are prioritized over debt and equity due to asymmetric information (Myers & Majluf, 1984). The cost of financing 𝐶𝑓 can be represented as a hierarchy: 𝐶𝑓(internal)< 𝐶𝑓(debt)< 𝐶𝑓(equity) (2) Thus, the financing decision function can be expressed as: 𝐹𝐼𝑁𝑆 = 𝛼0+ 𝛼1(Internal)+ 𝛼2(Debt)+ 𝛼3(Equity)+ 𝜀 (3) FINS is the financing mix and ε is the stochastic error term. This model brings out the order of financing preference and the implicit cost consequences in order to shape risk financing approaches, which determine operational results. In addition to these arguments, the resource-based view (RBV) suggests that a successful project is as a result of access to resources that are rare, valuable and inimitable, not necessarily in form of financial resources but also in form of governance structure and skill (Barney, 1991). The success of the project Ps probability can then be expressed as a product of the financing capacity and organization resources: 𝑃 𝑠= 𝑓(𝐹𝐼𝑁𝑆, 𝐵𝑆𝐼𝑍, 𝐵𝐼𝑁𝐷, 𝐺𝐸𝑁𝐷, 𝑂𝑊𝑁𝑅)+ 𝜇 (4) where 𝐵𝑆𝐼𝑍 represents board size, 𝐵𝐼𝑁𝐷 denotes board independence, 𝐺𝐸𝑁𝐷 captures gender diversity, 𝑂𝑊𝑁𝑅 reflects ownership structure, and 𝜇 is the error term. This formulation integrates financial and governance factors into a unified explanatory model. Project success is ultimately a multidimensional outcome that reflects efficiency, cost control, stakeholder satisfaction, and long-term sustainability (Turner & Zolin, 2012). Drawing from production theory, project performance 𝑂𝑃𝑆𝑆 can be expressed as a function of input variables: Together, these theoretical models underscore that project outcomes in the construction sector cannot be divorced from financing decisions and governance arrangements. Agency theory emphasizes mitigating conflicts, pecking order theory outlines financing preferences, while the RBV stresses the strategic use of organizational resources. 3.2. Methods This study employs a panel econometric framework to investigate the impact of corporate governance on the long-term sustainability of deposit money banks (DMBs) in Nigeria. Using secondary data from the audited annual reports of all thirteen quoted banks in Nigeria from 2015 to 2023, this study ensures that the sample represents the entire population of quoted DMBs on the Nigerian Exchange Group (NGX) and eliminates sampling bias by covering the period to capture post-financial reform dynamics and sustainability reporting practices in line International Journal of Social and Educational Innovation (IJSEIro) Volume 12/ Issue 24/ 2025 468 with the Central Bank of Nigeria (CBN) code of corporate governance. The dataset consists of annual observations for the thirteen DMBs. The study employs panel regression techniques, consistent with prior empirical banking studies (Baltagi, 2021). Given the structure of the data, fixed effects (FE) and random effects (RE) estimators are implemented. The FE model controls for unobservable time-invariant heterogeneity across banks, while RE assumes individual effects are uncorrelated with the regressors. To determine the appropriate estimator, the Hausman specification test is applied. Results show that FE is more appropriate for OPSS, while RE is consistent for FINS, as indicated by significant and non-significant Chi-square statistics respectively. The general panel specification is written as: 𝑌 𝑖𝑡 = 𝛼𝑖+ 𝛿𝑡+ 𝛽1𝐵𝑆𝐼𝑍𝑖𝑡 + 𝛽2𝐵𝐼𝑁𝐷𝑖𝑡 + 𝛽3𝐺𝐸𝑁𝐷𝑖𝑡 + 𝛽4𝑂𝑊𝑁𝑅𝑖𝑡 + 𝜀𝑖𝑡 where 𝑌 𝑖𝑡 represents either FINS or OPSS, 𝛼𝑖 are bank-specific effects, and 𝛿𝑡 are time dummies to capture macroeconomic shocks (such as inflation or regulatory policy). To estimate the effect of corporate governance on bank sustainability, two baseline models are specified. Model 1: Financial Sustainability 𝐹𝐼𝑁𝑆𝑖𝑡 = 𝛽0+ 𝛽1𝐵𝑆𝐼𝑍𝑖𝑡 + 𝛽2𝐵𝐼𝑁𝐷𝑖𝑡 + 𝛽3𝐺𝐸𝑁𝐷𝑖𝑡 + 𝛽4𝑂𝑊𝑁𝑅𝑖𝑡 + 𝜇𝑖𝑡 Model 2: Operational Self-Sufficiency 𝑂𝑃𝑆𝑆𝑖𝑡 = 𝛽0+ 𝛽1𝐵𝑆𝐼𝑍𝑖𝑡 + 𝛽2𝐵𝐼𝑁𝐷𝑖𝑡 + 𝛽3𝐺𝐸𝑁𝐷𝑖𝑡 + 𝛽4𝑂𝑊𝑁𝑅𝑖𝑡 + 𝜇𝑖𝑡 where 𝑖 denotes bank, 𝑡 denotes time, 𝛽0 is the intercept, 𝛽𝑗 are slope parameters, and 𝜇𝑖𝑡 is the error term. Table 1 contain the definition of the variables. Table 1: Variable Definition and Measurement Variable Abbreviation Definition and Measurement Source Financial Sustainability FINS Return on Assets (net income ÷ total assets) Banks’ Annual Reports (2015– 2023) Operational SelfSufficiency OPSS Financial revenue ÷ (financial expense + impairment loss + operating expense) Banks’ Annual Reports (2015– 2023) Board Size BSIZ Total number of directors on the board Banks’ Corporate Governance Reports International Journal of Social and Educational Innovation (IJSEIro) Volume 12/ Issue 24/ 2025 469 Variable Abbreviation Definition and Measurement Source Board Independence BIND Ratio of non-executive directors ÷ total directors Banks’ Annual Reports Gender Diversity GEND Number of female directors ÷ total directors Banks’ Corporate Governance Reports Ownership Structure OWNR Percentage of shares held by the largest shareholders (≥5%) Banks’ Shareholding Disclosures Source: Author (2025) 4. Results 4.1. Discussion of Results Table 2: Descriptive Statistics Statistics OPSS FINS BSIZ BIND OWNR GEND Mean 6.499 6.039 9.840 3.716 0.087 2.890 Median 6.587 0.620 4.220 5.883 0.120 6.066 Maximum 8.302 173.130 16.219 7.096 3.098 3.150 Minimum 5.030 0.020 2.310 3.532 -3.244 1.510 Std. Dev. 0.664 21.159 10.434 0.076 0.742 2.370 Skewness 0.710 6.873 3.066 -3.784 -2.909 13.400 Kurtosis 5.208 46.485 13.065 26.465 26.083 170.250 Jarque-Bera 66.127 14,100.030 770.820 3,890.612 3,820.876 194,796.600 Probability 0.000 0.000 0.000 0.000 0.000 0.000 Observation 243 243 243 243 243 243 Source: Author’s Computation (2025) The descriptive statistics in Table 2 provide the first insights into the distributional properties of the variables. Operational self-sufficiency and financial sustainability both record mean values above unity, implying that, on average, banks generate sufficient revenues to cover costs while also maintaining profitability. The mean value of operational self-sufficiency suggests resilience in banks’ cost recovery, which echoes the argument that efficiency remains a critical determinant of financial sustainability in African banking markets (Asare, Muah, Frimpong, & Anyass, 2022; Ozili, 2023). However, the dispersion of financial sustainability is notable, with a very high standard deviation and extreme skewness, indicating that while most banks hover International Journal of Social and Educational Innovation (IJSEIro) Volume 12/ Issue 24/ 2025 470 near moderate profitability, a few outliers achieve disproportionately high returns. This validates the notion that firm-level heterogeneity plays a significant role in banking performance (Barney, 1991). Corporate governance indicators also show considerable variation. The average board size is around nine directors, consistent with governance practices in Nigerian financial institutions (Awotomilusi & Ajoloko, 2022), yet the high kurtosis indicates concentration around the mean with occasional very large boards. Board independence demonstrates negative skewness, revealing clustering at relatively high independence ratios, which supports the agency theory view that independent directors play a critical role in mitigating managerial opportunism (Jensen & Meckling, 1976; Ayodeji & Okunade, 2019). Gender diversity shows extreme kurtosis, confirming that female representation is minimal and highly uneven across banks, echoing concerns about tokenism in board appointments and limited integration of diversity principles (Post & Byron, 2015; Bello, 2025). Ownership concentration exhibits negative skewness and fat-tailed distribution, highlighting the dominance of block shareholders, which may either discipline management or entrench controlling interests, consistent with prior evidence from African and emerging market contexts (Bokpin, 2010; Nnadozie, Okoroji, Cyril-Nwuche, & Onwuchekwa, 2025). The Jarque-Bera statistics confirm non-normality across variables, justifying the use of panel methods robust to distributional irregularities (Baltagi, 2021). Table 3: Correlation Coefficients Correlation BSIZ BIND GEND OWNR BSIZ 1.000 BIND -0.020 1.000 GEND 0.010 0.060 1.000 OWNR -0.020 -0.020 0.010 1.000 Source: Author’s Computation (2025) Correlation results in Table 3 reveal weak linear relationships among governance variables, with coefficients very close to zero. The lack of strong correlations reduces the likelihood of multicollinearity, enhancing the reliability of regression estimates. 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