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Sahel Analyst: ISSN 1117-4668

EFFECT OF BOARD DIVERSITY ON FINANCIAL

PERFORMANCE OF LISTED DEPOSIT MONEY BANKS

IN NIGERIA

Chandrasekharan, C.V.1

Abstract

This paper examined the effect of board diversity on financial

performance of listed deposit money banks in Nigeria. Secondary data were

collected from the published annual reports of 8 out of the 15 banks listed on

the Nigerian Stock Exchange (NSE) as at 31st December, 2015. Fixed effect

regression analysis with robust standard errors was conducted after the

Hausman specification test. The results indicated that board diversity has

significant effect on financial performance of Nigerian deposit money banks.

The outcome of this study confirms the need for the inclusion of women and

foreign directors in the top management of corporate entities. Specifically, it

was reported that both female and foreign directors have positive and

significant effect on return on assets. However, board ethnicity has negative

and insignificant effect on bank performance. It is therefore recommended

that the Central Bank of Nigeria should make it mandatory for deposit money

banks in Nigeria to have a minimum of 10% of their board members as female

directors. Also recommended is that the regulatory authorities should also

encourage the inclusion of foreign directors on the boards of banks through

moral suasion.

Keywords: Board diversity, financial performance, female directors, foreign

directors, board ethnicity.

Introduction

The increasing interest of corporate stakeholders on the role of board

diversity in improving organizational performance can be attributed to the

clamour for better governance mechanisms in different countries across the

globe. Several countries, for example, have either implemented or are

advocating for gender and foreign directors’ quotas in the board composition

of their listed companies. These countries include Norway, France, Spain and

Malaysia (Herdhayinta, 2016). In Nigeria also there has been an increasing

agitation for more diverse boards in both private and public sectors of the

1 Department of Accounting, Ahmadu Bello University, Zaria. ([email protected])

Sahel Analyst: Journal of Management Sciences (Vol.14, No.3, 2016), University of Maiduguri


economy. This phenomenon is largely perceived within the normative

framework for equity and social justice as opposed to discrimination against

the minority. Consequently, regulators and policy makers seldom challenge

the notion that board of directors should be composed of individuals from

varied backgrounds with a view to providing equitable opportunities to serve

on boards and in upper management positions (Carter, Simkins, D’Souza &

Simpsons, 2010). Thus, understanding the role of board diversity in financial

performance of organizations is of interest not only to managers and investors

but also to the government as it affects political choices and decisions such as

equal opportunity and inclusion.

Often the subject of board diversity is discussed within the framework

of resource dependency and upper echelon theories. The resource dependency

theory that diversity elements such as gender and ethnicity in the board

provide unique information sets for better management decision making

(Carter et al., 2010). As such, some of the benefits derivable may include

more access to information and better political connections that are much

needed to put the firm at an advantage position over its competitors. It follows

also that increasing internationalization of corporations naturally demands

diverse boards in order for the director to bring various perspectives and non-

traditional problem solving approaches. The upper echelon theory simply

asserts that organizational outcomes, both strategies and effectiveness, are

dependent on the composition of the top managers (Hambrick and Mason,

1984). These theories therefore suggest that boards consisting of directors

from varied backgrounds can be a veritable force to reckon with achieving

corporate success by impacting on group dynamics and sending positive

signal to the market. Further, Adams and Ferreira (2009) argues that when

board of directors are perceived as a collection of individuals whose biases

and prejudices, and whose behaviour is affected by social constraints and

power relations then it follows that director heterogeneity plays an important

role in the effective functioning of the board.

Today, Nigerian banks are faced with serious economic challenges that

include withdrawal of government funds from the banks with the introduction

of the Treasury Single Account (TSA), which is coupled with the economic

recession brought about by sharp fall in oil prices. These events have led to

decline in banks profitability and rise in bad loans. No fewer than 1,400

workers have been sacked in 2016 by banks in response to the challenges in

the nation’s economy, which has led to declining profits of these institutions

(Punch, June 2016). Given the importance of banks to national economies of

developing nations and its huge effect of economic growth and development,

a study of the role of boards in achieving organizational success is apt and

imperative

Like most countries in Africa, Nigerian corporate boards, including the

banking sector, are homogeneous to some extent. They are essentially male

dominated, composed of Nigerians from largely same ethnic backgrounds.

Effect of Board Diversity on Financial Performance of Listed Deposit Money Banks in

Nigeria

Sahel Analyst: ISSN 1117- 4668

This has continued to be the practice since the appointments are done in an old

boy network whereby the male directors introduce their friends to boards

before they retire (Wachudu & Mboya, 2010). However, there are few boards

that are heterogeneous in composition. For example, before Oceanic Bank Plc

was acquired in 2010 following corporate malpractice by its executive

directors by way of expropriating depositors’ funds, it was headed by a female

Chief Executive Officer (CEO). The unprecedented failure of the bank has led

to increasing concern by corporate stakeholders as to the relevance of women

directors in aligning the interest of mangers and that of shareholders.

Statement of the Problem

There is growing body of empirical literature that examine the

relationship between board diversity and financial performance using various

components of diversity including gender, foreigners and ethnicity. However,

most of these studies used foreign samples to document different results.

Erhart, Werbel and Shrader (2003), Carter, Simkins and Simpson (2003),

Marimuthu (2008) and Wachudu and Mboya (2010) found positive effect of

board diversity on organizational performance. Also, there are few recent

empirical evidence in Nigeria, which include Garba and Abubakar (2014) and

Ujunwa, Okeyeuzu and Nwakobi (2012). Both the Nigerian studies reported

positive association between heterogeneous boards and financial performance.

It is worth mentioning that studies in this area, especially in Nigeria

are sectorial, which makes the results largely too specific to the sample and

can hardly be extended to other sectors of the economy. For example, while

Garba and Abubakar (2014) focused on listed insurance companies Ujunwa et

al. (2012) on the other hand used very large sample that cut across all sectors.

The deficiency of these approaches is that the findings regarding the former

study may not be applicable to the banking industry given the differences of

business environment and the regulatory setting of the two industries. In the

same vein, while it is commendable that the latter used large sample, however,

this may give too general findings as the study failed to control for industry

effects. With respect to the deposit money banks, Akinyomi and Olatoye

(2014) focused on only the influence of female directors on financial

performance, while neglecting other board diversity variables. It is against this

backdrop that this study seeks to provide answer to the question: Does board

diversity affect financial performance of listed deposit money banks in

Nigeria?

Objectives of the Study

The study seeks to achieve the following specific objectives;

i. To examine the effect of female directors on financial performance

of listed deposit money banks in Nigeria.

ii. To determine the effect of foreign directors on financial

performance of listed deposit money banks in Nigeria.

iii. To examine the effect of ethnic diversity of financial performance

of listed deposit money banks in Nigeria.



In line with the aforementioned objectives the study tests the following

hypotheses;

Ho1: Female directors have no significant effect on the financial performance

of listed deposit money banks in Nigeria

Ho2: Foreign directors have no significant effect on the financial performance

of listed deposit money banks in Nigeria

Ho3: Board Ethnicity has no significant effect on the financial performance of

listed deposit money banks in Nigeria

The study uses data of deposit money banks for the period 2009 to

2015. This period is chosen because of the increasing agitation for more

equitable and inclusive representation on corporate boards. The study

contributes to the literature in that it adds to the body of knowledge, both in

theory and empirical evidence, on the role of board diversity in financial

performance.

The remaining of the paper is structured as follows. Section two raises

conceptual issues that relate to the study, review empirical literature and

presents the theoretical framework. Section three discusses methodological

issues. Section five presents the results and section five concludes the study

and proffers recommendations.

Literature Review

In this section, the concept of board diversity is discussed and

empirical literature on the effect of board diversity on financial performance is

reviewed.

Concept of Board Diversity

There seems to be a general uniformity in the definition of board

diversity by various scholars to mean the variety in the composition of the

board of directors (Van der Walt & Ingley, 2003; Zainal, Zulkifli & saleh,

2013). In simple words, therefore, the term diversity refers to heterogeneity in

the composition of corporate board of directors. Swartz and Firer (2005) as

cited in Garba and Abubakar (2014) hold that board diversity can broadly be

defined as variety amongst the members of boards of directors, which includes

such characteristics as expertise, managerial background, personality, learning

style, age, gender, education and values. Zainul et al. (2013) explain that the

diversity characteristics can be broadly categorized into two, namely,

demographic diversity and cognitive diversity. They further explain that

demographic diversity concerns the observable or readily detectable attributes

of directors that includes race or ethnicity, nationality, gender and age,

whereas, cognitive diversity relates to the unobservable or less visible

attributes of directors, such as educational, functional and occupational

backgrounds, industry experience, and organizational membership. From the

foregoing, this study defines board diversity as heterogeneity in board

composition with respect to gender, nationality and ethnicity.


Nigeria


The growing attention accorded board diversity as a component of

corporate governance is as a result of greater call for the broadening of

directors’ role to extend beyond the traditional monitoring and oversight

functions. There are various benefits derivable from diverse boards as pointed

out by several studies. These include effective and non-traditional approach to

problem solving, increased creativity and innovation and better understanding

of market dynamics (Carter et al., 2010; Zainul et al., 2013). Other advantages

include greater inclusion of corporate stakeholders in organizational decision

making and bringing various perspectives that are needed to face the

numerous challenges that characterize today’s complex business environment

(Van der Walt & Ingley, 2003). However, there are a few other studies that

argue against a heterogeneous board. These studies maintain that even though

a diverse board is more likely to have more access to information, the board

may also experience communication and coordination problems due to the

failure to accept other members’ expertise in the problem solving process

(Huse & Solberg, 2006). Despite this criticism there is growing advocacy and

acceptance of varied board even as there are emerging empirical evidence that

demonstrate its relationship with financial performance.

Board Diversity and Financial Performance As mentioned earlier, there are empirical studies that investigated the

impact of gender diversity on financial performance. These studies are

characterized by mixed findings, which is as a result of differences in

governance mechanisms and institutional settings of countries which are

coupled with differences in research perspectives. Using data on 432 major

American corporations for the period 1997 to 2006, Dobbin and Jung (2011)

analyzed the effect of corporate gender diversity on stock performance. The

pooled OLS regression results indicated increases in board gender diversity

did not significantly affect subsequent profitability. For stock performance,

however, it was reported that firms experienced fall in share prices following

the appointment of female directors on corporate boards. It is worth noting

that the sharp difference between the strength of corporate governance

between the developed and developing nations could render this finding

irrelevant in the Nigerian scenario.

Wachudu and Mboya (2011) tested the effect of board gender diversity

on performance of commercial banks in Kenya for the period 1998 to 2009.

The sample consisted of 32 commercial banks and stepwise regression was

used as the technique of analysis. It was found that gender board diversity has

no significant effect on performance of commercial banks in Kenya. This

finding, as pointed out by the study, may be as a result of poor representation

of female on corporate boards. On the contrary, Gulamhussen and Santa

(2010) used a sample of 25 top banks from OECD countries to examine the

same association. The two-stage least square regression result showed a

positive relationship between gender diversity and financial performance.



In Nigeria, Ujunwa et al. (2013) studied this relationship using a

sample of 122 listed Nigerian firms for the period 1991 to 2008. The fixed

effect generalized least square regression result revealed a negative interaction

between female directors and return on asset. This suggests that female

directors are weak monitors of top management and that they adversely affect

financial performance of firms. The result of this study is marred by certain

shortcomings. First, the period covered extended the period prior to the

introduction of Code of Corporate Governance for listed companies in

Nigeria. This period is characterized by weak governance structures and

certain important governance recommendations such as the requirement for

independent directors to the board were not in place. It follows therefore that

appointments may not have been based on merit but based on ties with the

board leaders typically the CEO and the Chairman. Second, the inclusion of

all sectors of the economy in the study sample may give results that are too

generic and may not apply to certain sectors. This is because the requirements

for the sectors in terms of board composition vary. Hence the proliferation of

different codes for corporate governance in Nigeria, which are tailored to suit

the need of the different industries.

Regarding nationality, extant literature provides mixed result on the

effect of foreign directors on financial performance. In this regard Randoy,

Thomsen and Oxelheim (2006) studied the influence of foreign directors on

corporate performance using a sample of Norwegian and Swedish firms. Their

regression analysis result, which controlled for country specific factors, shows

a significant positive impact on nationality on Torbin’s Q. In a similar study,

Oxelheim, Gregoric, Randoy and Thomsen (2013) used sample of firms from

Denmark, Norway, Sweden and Finland to demonstrate that the percentage of

foreign board members is positively related to financial internationalization.

The further demonstrated that recruitment of an outsider Anglo-American

director showed a significantly higher firm value than Anglo-American

director and this, they observed, can be seen as an alternative to reduce cost of

capital.

Similar studies were also conducted on the effect of board ethnicity on

financial performance. Carter, Simkins and Simpsons (2003) studied the

impact of ethnic minorities on the boards of Fortune 100 firms in the United

States. The study defined ethnic minorities as composing of are African-

Americans, Asians, and Hispanics. It was documented that ethnic minorities

had significant positive interaction with firm value. In Nigeria, Garba and

Abubakar (2014) documented a positive effect with ROA, ROE and Tobin’s

Q in a sample of 12 listed insurance firms for the period 2004 to 2009. On the

contrary, Ujunwa et al. (2013) demonstrated that ethnicity did not have

significant effect on financial performance using a sample of 125 listed firms

in Nigeria. The controversy between these two Nigerian studies may be as a

result of sample bias as Garba and Abubakar (2014) studied only insurance


Nigeria


firms, while Ujunwa et al. (2013) used a comprehensive data that cut across

all sectors.

From the review of empirical literature, it is observed that while there

is increasing agitation for board diversity, the statistical evidence on its impact

in driving firm value has been mixed. These differences of findings are largely

as a result of sample selection and methodological disparities. This study

supports sectorial approach to studies of this nature because different sectors

require different board compositions, which could help in achieving

organizational goals.

Theoretical Framework

Among the theories that have been used to explain the association

between board diversity and financial performance, the resource dependency

and upper echelon theories stand out. Both theories serve as the underpinning

theories for this study.

i. Resource Dependency Theory: Resource dependency theory predicts

that diverse directors give access to important constituencies in

external environments. Moreover, diversity of board members sends

positive signals to the market because it demonstrates the existence of

various perspectives and non-traditional approaches to problem

solving.

ii. Upper Echelon Theory: In a similar argument, the upper echelon

theory posits that organizational outcomes are contingent upon the

composition and competence of those at the top management. Since

board of directors is the highest decision making authority of the

organization, its structure is an important tool in achieving financial

performance.

Methodology The causal research approach is chosen as the design for the study.

This approach, specifically the correlational research design, offers the

latitude to test the statistical association and/or variability among variables.

The design enables the researcher to test the adopted theory against unique

and large sample observations that make findings more generalised to the

study population as a whole. All 15 listed Deposit Money Banks (DMBs)

serve as the population of the study. Two criteria were used to arrive at the

sample. One, the bank must have continuously traded on the floor of the

Nigerian Stock Exchange for the period 2009 to 2015. Two, it must have

readily available data for all the variables of interest. This gives a sample of 8

banks that meet up with both the criteria. The data were collected from a

secondary source through published annual reports.

The study adopts the heteroskedasticity corrected fixed effect

regression as the technique of data analysis. This model was adopted after the

Hausman specification test suggested fixed effect model as the one the fits the

data. However, we tested for homoskedastcity using the modified wald test for



group-wise heteroskadasticity. The result suggested the constant variance

assumption of the fixed effect model was not violated, hence the application

of the model using robust standard errors.

Based on the resource dependency and the upper echelon theories,

financial performance (ROA) is measured as a linear function of Board

Diversity in line with previous studies such as Carter et al. (2010) and

Wachudu and Mboya (2010). Mathematically,

It follows that:

Where = Return on Assets

= Ratio of Female directors to total number of Directors

= Ratio of foreign directors to total number of directors

= dichotomous variable: 1 if the board consists of directors from the

three ethnic groups in Nigeria, that is, Hausa, Igbo and Yoruba, and 0

otherwise.

= Board size, which is the total number of directors on the board.

= firm i at time t

= constant term

and are parameters to be estimated.

The study controls for board size based on its established link with

financial performance. A lot of studies argued for this control because larger

boards have been statistically proven to constrain financial performance

because of difficulty in decision making. It has also been posited that larger

boards pay more attention to courtesy and politeness rather discharging its

primary oversight and monitoring functions. Several studies have also

controlled for board size in board diversity studies such as Garba and

Abubakar (2014) Wachudu and Mboya (2010).

Result and Discussion

This section presents the results of the study, which is followed by

discussion and policy implications of findings. The presentation follows this

sequence; descriptive statistics, correlation matrix and the regression result.

Descriptive Statistics

The descriptive statistics provides an insight into the basic

characteristics of the data but does not lend itself to statistical inferences. The

statistics include mean, standard deviation, minimum, maximum and

skewness and kurtosis.


Nigeria


Table 1: Descriptive Statistics

Variables ROA FMD FORD ETH BS

Mean 1.61 8.90 15.63 0.63 13.80

Std. Dev. 1.46 6.50 16.14 0.49 3.37

Min. -1.95 0.00 0.00 0.00 8.00

Max. 5.00 25.00 50.00 1.00 20.00

Swilk Prob. 0.39 0.03 0.00 0.93 0.07

Obs 56 56 56 56 56

Source: Summary of Descriptive Statistics from Stata 13

Table 1 reveals that financial performance of listed deposit money

banks recorded an average of 1.6% of total assets during the period of study.

The figure does not vary substantially across the banks as indicated by the

standard deviation. However, the minimum and maximum of -1.95 and 5.0

respectively indicate that while some banks recorded loss of about 2% of total

assets, others have recorded profit of 5%. With respect to the board diversity

variables, the statistics shows that female directors represented only 8% of the

total number of director and a standard deviation of 6.5. The maximum

number of female representation is 25% of board size and the minimum was

zero. This shows that boards of Nigerian banks are essentially male

dominated. Foreign directors have a mean of 15.6%, with standard deviation

of 16.1 and a minimum and maximum of 0 and 50% respectively. The

statistics indicates that while some banks had zero foreigners on their

corporate boards, others have a fairly large representation of 50%. Ethnic

diversity has a mean of 0.63% indicating that more than half of the firms in

the sample are composed of directors that cut across the three major ethnic

groups in Nigeria. Number of directors that sit of the board of Nigerian banks

had a mean of 14 members and a maximum of 20. There is wide variation of

this number within the banks as indicated by the large difference between the

mean and the standard deviation.

Table 2: Correlation Matrix

Variable ROA FMD FORD ETH BS

ROA 1.0000

FMD 0.4712 1.0000

FORD 0.0107 0.4779 1.0000

ETH 0.0614 -0.4023 -0.3462 1.0000

BS -0.0398 -0.2348 -0.6284 0.5287 1.000

Source: Correlation Matrix result obtained from Stata 13

Table 2 shows the correlation matrix which reveals the relationship

among pairs of variables in a regression model. The results show that all board

diversity variables are positively correlated with financial performance

(ROA). Female directors, foreign directors and ethnicity have correlation



coefficients of 0.47, 0.01 and 0.06 respectively. This simply implies that as

diversity increases so does return on asset of deposit money banks. On the

contrary, board size reveals an inverse association with return on assets. A

closer look at the result shows that the association among pairs of independent

variables is within the acceptable range of 0.80 as suggested by Gujarati

(2008). This further shows that the variables are fit to be accommodated in the

same regression model because they are free from exact correlations, which

may bias regression estimates.

Table 3: Summary of Regression Result

Variable Coefficient Robust Std.

Err

t Prob.

Constant -5.1823 1.1134 -4.65 0.002

FMD 0.1834 0.0205 8.97 0.000

FORD 0.0284 0.0073 3.89 0.006

ETH -0.0775 0.1030 -0.75 0.476

BS 0.3453 0.0670 5.15 0.001

R-Square

(Within)

0.6062

F. Stat 160.96

Prob. of F. 0.000

Summary of Fixed Effect Regression obtained from Stata 13.

As can be seen from Table 3, the regression result shows that the

coefficient of determination (R- square within) has the value of 0.61 indicating

that board diversity variables explain the variation in financial performance to

61%. The other 39% is explained by other factors not captured in the model.

Also, the F. statistics of 160.96 which is significant at 1% shows that the

model is fit. Various robustness tests were conducted in order to ensure the

reliability of the results. Firstly, because we deal with panel data analysis, the

hausman specification test was conducted in order to make a choice between

fixed effect and random effect regression models. The test returned a chi2 of

11.89 which was significant at 1% suggesting that the fixed effect model is

appropriate and efficient. A further test of the group-wise heteroskedasticity

test using the wald test was also conducted and the result shows that the data

violates the homoskedastcity assumption. This makes it imperative to run the

fixed effect regression model with robust standard errors which corrects for

absence of constant variance of the error term. Lastly, multicollinearity test

was conducted using the Variance Inflation Factor (VIF). The result indicated

mild VIF coefficients which suggested there is no harmful multicollinearity

among the independent variables. All results are attached in the appendix.

The regression equation therefore is as follows:


Nigeria


Turning our attention to the individual variables, the result shows that

ratio of female directors has a coefficient of 0.18 and a t- value of 8.97 which

is positive and significant at 1%. This implies that other factors held constant,

1% increase in female directors will lead to 1.8% increase in return on assets.

The finding is similar to Garba and Abubakar (2014) who reported similar

finding when they studied a sample of Nigerian insurance firms. The

similarity may point to the fact that gender diversity plays a significant role in

achieving financial performance of the Nigerian financial sector in general.

Also, our result confirms finding from other countries such as the OECD

countries as reported by Gulamhussen and Santa (2011). However, the result

contradicts both Ujunwa et al (2013) and Wachudi and Mboya (2010) who

reported an inverse effect of female directors on return on assets in Nigerian

and Kenyan firms respectively. Further, our findings is in line with the

resource dependency theory which posits that diversity brings about more

connection to the external environment and varied problem solving

approaches that can trigger financial performance. Based on this, the study

rejects the null hypothesis which states that female directors have no

significant effect on financial performance of listed deposit money banks in

Nigeria.

Foreign directors has a coefficient of 0.02, and a t value of 3.89 which

is significant at 1% indicating that 1% increase in foreign directors, all other

factors remaining constant, will lead to 0.2% increase in financial

performance. This supports the findings of Randoy and Oxelheim (2006) and

Oxelheim et al. (2013) who found the same results using sample of firm from

Denmark, Norway, Sweden and Finland. The result further conforms to the

finding of Garba and Abubakar (2014). Our finding also supports the resource

dependency theory which predicts that board diversity across nationality lines

will help firms have more access to critical resources such as financial

flexibility by way of reduction of cost of capital by enhancing cross-border

information acquisitions and consequently higher return on assets. This study

therefore rejects the null hypothesis which states that foreign directors have no

significant effect on financial performance of listed deposit money banks in

Nigeria.

The result of board ethnicity is not statistically significant at 10%. The

sign is however negative indicating that ethnic diversity may hamper firm

performance. This may be as a result of difficulty that is likely to arise as a

result of geographical and communication gaps. Lastly, board size which is a

control variable in this study has a negative effect on financial performance.

This implies that smaller boards are more effective in achieving organizational

success.

Our findings offer various policy implications. Firstly, it confirms the

need for the inclusion of women in the boards of deposit money banks. This is

relevant in the face of increasing agitation for gender diversity in both

corporate and political spheres in response to the need for women



empowerment and poverty alleviation in Nigeria. Secondly, heterogeneity of

boards with respect to nationality is an indication that host countries are

liberal and open to foreign direct investments. This is also much needed in the

increasing globalization and interconnectivity of national capital markets.

Conclusion

The subject of board diversity has attracted much attention and policy

debates among stakeholders of firms corporate entities. This is partly as a

result of increase business competitiveness and the need to explore other

options, especially with regards to board of directors’ composition, in order to

improve business performance. It is as a result of this and the dearth of

empirical evidence on the research area, the present study examines the effect

of board diversity and financial performance of listed deposit money banks in

Nigeria. The results indicate that heterogeneous boards have effect on

financial performance. Specifically, the study documents that both gender and

national diversity positively affect financial performance. This means that

boards structured to compose of females directors and directors from varied

nationalities have the tendency of improving firm performance.

Recommendations

It is therefore recommended that the Central Bank of Nigeria should

make it mandatory for deposit money banks in Nigeria to have a minimum of

10% of their board members as female directors. Also recommended is that

the regulatory authorities should also encourage the inclusion of foreign

directors on the boards of the banks through moral suasion.

The result of the study should be interpreted with caution as it is not

devoid of limitations. One such limitation is that the study considers only

listed deposit money banks in Nigeria. The findings may not apply to other

domains or even the same domain at different period. However, this

shortcoming does not invalidate the outcome of the study as it is largely

consistent with the findings from previous empirical evidences.

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Nigeria


Appendix

bs -0.0398 -0.2348 -0.6284 0.5287 1.0000

eth 0.0614 -0.4023 -0.3462 1.0000

frd 0.0107 0.4779 1.0000

fmd 0.4712 1.0000

roa 1.0000

roa fmd frd eth bs

(obs=56)

. correlate roa fmd frd eth bs

bs 56 13.80357 3.370566 8 20

eth 56 .625 .4885042 0 1

frd 56 15.6268 16.13536 0 50

fmd 56 8.904206 6.499496 0 25

roa 56 1.613472 1.464126 -1.952344 4.996714

Variable Obs Mean Std. Dev. Min Max

. summarize roa fmd frd eth bs

_cons 2.002434 1.005721 1.99 0.052 -.0166342 4.021503

bs -.148017 .0698099 -2.12 0.039 -.2881663 -.0078677

eth 1.19159 .4150891 2.87 0.006 .3582639 2.024916

frd -.0387053 .0143518 -2.70 0.009 -.0675178 -.0098929

fmd .1700654 .0302807 5.62 0.000 .1092744 .2308564

roa Coef. Std. Err. t P>|t| [95% Conf. Interval]

Total 117.901503 55 2.1436637 Root MSE = 1.1884

Adj R-squared = 0.3412

Residual 72.0242627 51 1.41224045 R-squared = 0.3891

Model 45.8772407 4 11.4693102 Prob > F = 0.0000

F( 4, 51) = 8.12

Source SS df MS Number of obs = 56

. regress roa fmd frd eth bs

Mean VIF 1.84

fmd 1.51 0.662911

eth 1.60 0.624492

frd 2.09 0.478824

bs 2.16 0.463774

Variable VIF 1/VIF

. vif



. est store re

rho .76518442 (fraction of variance due to u_i)

sigma_e .68519813

sigma_u 1.2369034

_cons -3.620691 1.432002 -2.53 0.011 -6.427363 -.814019

bs .2351238 .0976641 2.41 0.016 .0437056 .426542

eth .1788309 .4099572 0.44 0.663 -.6246705 .9823324

frd .0179627 .0170468 1.05 0.292 -.0154485 .0513739

fmd .1792575 .0281969 6.36 0.000 .1239925 .2345225

roa Coef. Std. Err. z P>|z| [95% Conf. Interval]

corr(u_i, X) = 0 (assumed) Prob > chi2 = 0.0000

Wald chi2(4) = 59.14

overall = 0.1674 max = 7

between = 0.0420 avg = 7.0

R-sq: within = 0.5982 Obs per group: min = 7

Group variable: id Number of groups = 8

Random-effects GLS regression Number of obs = 56

. xtreg roa fmd frd eth bs, re

. est store fe

F test that all u_i=0: F(7, 44) = 15.63 Prob > F = 0.0000


sigma_e .68519813

sigma_u 1.6553316

_cons -5.182289 1.510802 -3.43 0.001 -8.227109 -2.137468

bs .3452987 .1100003 3.14 0.003 .1236077 .5669898

eth -.0774609 .4184061 -0.19 0.854 -.9207031 .7657812

frd .0284367 .0181431 1.57 0.124 -.0081283 .0650018

fmd .1834462 .0283116 6.48 0.000 .126388 .2405045


corr(u_i, Xb) = -0.6191 Prob > F = 0.0000

F(4,44) = 16.94


between = 0.0169 avg = 7.0



Fixed-effects (within) regression Number of obs = 56

. xtreg roa fmd frd eth bs, fe


Nigeria


(V_b-V_B is not positive definite)

Prob>chi2 = 0.0182

= 11.89

chi2(4) = (b-B)'[(V_b-V_B)^(-1)](b-B)

Test: Ho: difference in coefficients not systematic

B = inconsistent under Ha, efficient under Ho; obtained from xtreg

b = consistent under Ho and Ha; obtained from xtreg

bs .3452987 .2351238 .110175 .0506141

eth -.0774609 .1788309 -.2562918 .0836586

frd .0284367 .0179627 .010474 .0062111

fmd .1834462 .1792575 .0041887 .0025454

fe re Difference S.E.

(b) (B) (b-B) sqrt(diag(V_b-V_B))

Coefficients

. hausman fe re

Prob>chi2 = 0.0000

chi2 (8) = 92.68

H0: sigma(i)^2 = sigma^2 for all i

in fixed effect regression model

Modified Wald test for groupwise heteroskedasticity

. xttest3


sigma_e .68519813

sigma_u 1.6553316

_cons -5.182289 1.113381 -4.65 0.002 -7.815015 -2.549562

bs .3452987 .067031 5.15 0.001 .1867957 .5038018

eth -.0774609 .1029828 -0.75 0.476 -.3209764 .1660546

frd .0284367 .0073141 3.89 0.006 .0111416 .0457318

fmd .1834462 .0204569 8.97 0.000 .1350734 .231819


Robust

(Std. Err. adjusted for 8 clusters in id)

corr(u_i, Xb) = -0.6191 Prob > F = 0.0000

F(4,7) = 160.96


between = 0.0169 avg = 7.0



Fixed-effects (within) regression Number of obs = 56

. xtreg roa fmd frd eth bs, fe robust

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