Audit committee attributes and non-performing loans in Nigerian banks

Abstract

This study investigates the influence of audit committee (AC) attributes on banks’ non-performing loans (NPLs) in Nigeria. The study applied the generalized method of moments and quantile regression techniques to a data set of 18 commercial banks in Nigeria from 2006 to 2018. The results show that a higher proportion of non-executive directors and female representation in the AC are linked to improved loan quality, leading to reduced NPLs. Further results indicate that having the Chief Executive Officer (CEO) in the AC is associated with lower NPLs, indicating that the involvement of the CEO in the AC may be beneficial and not inherently negative. The implication of these findings is that regulators and banking stakeholders can understand the importance of AC attributes in the financial stability of the banking system. However, the AC’s financial expertise and size do not affect NPLs, suggesting that these attributes do not translate to thorough supervision of lending practices that can lead to a reduction in NPLs. Therefore, future research could consider other types of expertise, such as industry knowledge and legal expertise, rather than solely relying on AC’s financial expertise, to investigate what kind of expertise may enhance the effectiveness of the AC. Overall, this study contributes to the extant literature on the AC attributes that strengthen the AC’s effectiveness in the Nigerian banking sector.