Managerial Ownership and Bank Risk Taking: The Moderating Role of Capital Adequacy in Nigeria

Abstract

Managerial ownership is widely regarded as a mechanism for aligning incentives and reducing bank risk-taking; however, its effectiveness remains uncertain within Nigeria’s evolving regulatory environment. Existing empirical evidence provides mixed findings on whether managerial ownership mitigates or exacerbates risk, while limited attention has been given to the role of regulatory capital in shaping this relationship, particularly in emerging banking systems such as Nigeria. This study therefore examines the relationship between managerial ownership and bank risk-taking, with a specific focus on the moderating role of capital adequacy. The study adopts an ex post facto research design using panel data from fourteen Nigerian deposit money banks over the period 2009 - 2023. Data are obtained from audited annual reports and the World Development Indicators. A two way fixed effects model was employed as the preferred estimation technique. The findings revealed that Managerial ownership has a positive and statistically significant effect on bank stability leading to reduced taking and  supporting the alignment hypothesis, although this effect becomes statistically insignificant in the lagged specification. There is no statistically significant evidence of a nonlinear relationship, while capital adequacy exerts a positive and statistically significant moderating effect on risk taking, highlighting the dominant role of regulatory capital in shaping bank risk-taking behaviour. The study concludes that managerial ownership has a significant stabilizing effect on bank risk-taking in the short term, while its effectiveness is strengthened under higher levels of capital adequacy. It is therefore recommended that regulators reinforce capital adequacy requirements alongside governance reforms to enhance the effectiveness of managerial ownership in promoting sustained bank stability.