BOARD INDEPENDENCE, CREATIVE ACCOUNTING PRACTICES AND FINANCIAL DISTRESS IN NIGERIAN LISTED DEPOSIT MONEY BANKS

The recurrent episodes of distress that have characterised the Nigerian banking industry have
consistently been traced to weak internal oversight and the opportunistic exercise of accounting
discretion by bank management. This study examined the effect of board independence and creative
accounting practices on financial distress among Nigerian listed deposit money banks. Anchored on
Agency Theory and Positive Accounting Theory, the study adopted an ex post facto research design and
a positivist research philosophy, relying on secondary data extracted from the audited annual reports of
eleven purposively sampled deposit money banks listed on the Nigerian Exchange Group over the period
2015 to 2024, yielding a balanced panel of 110 bank-year observations. Financial distress was proxied by
the Ohlson O-Score, board independence was measured as the proportion of non-executive directors to
total board size, and creative accounting practices were proxied by discretionary loan loss provisions
(DLLP) obtained as residuals from a fixed-effects provisioning regression. Bank size, return on assets, and
leverage were included as control variables. The Hausman specification test favoured the fixed-effects
estimator over the random-effects alternative, and all models were estimated with cluster-robust
standard errors to address cross-sectional dependence identified through Pesaran's test. The results
showed that board independence had a positive but statistically insignificant effect on financial distress
(β = 0.7822, p = 0.691), while creative accounting practices, proxied by discretionary loan loss provisions,
also exerted a positive but statistically insignificant effect on financial distress (β = 0.8595, p = 0.821).
Both null hypotheses were therefore not rejected. Leverage and bank size, however, emerged as
consistently significant determinants of financial distress across both models. The study concludes that,
within a tightly regulated banking environment such as Nigeria's, internal governance and accounting
discretion do not independently drive distress outcomes, as regulatory and prudential controls appear to
substitute for internal monitoring mechanisms. The study recommends that regulators move beyond
numerical compliance with board-independence thresholds toward assessing the substantive
competence and engagement of non-executive directors, while sustaining prudential oversight of loanloss provisioning practices under the IFRS 9 expected credit loss framework.