The Moderating Role of Board Independence in the Credit Risk–Bank Rating Relationship: Evidence from West Africa

Abstract

This study investigates how board independence moderates the impact of credit risk on bank credit ratings in Ghana, Nigeria, and Togo. Using data from 28 banks between 2012 and 2023, a composite credit rating index was developed through Principal Component Analysis based on Standard & Poor’s, Moody’s, and Fitch data. The analysis, grounded in innovation, stewardship, and financial development theories, employed OLS regression with robust standard errors. Results show that credit risk has a significant negative effect on credit ratings, but this effect is mitigated by strong board independence. Firm size is positively associated with credit ratings, while regulatory differences, particularly in Ghana and Togo, also influence outcomes. The findings highlight the importance of board governance and effective credit risk management in enhancing banking sector stability. The study adds value by focusing on emerging markets and introducing a unified credit rating index as a tool for regional policy and academic inquiry.

Keywords:       Credit Rating, Credit Risk, Board Independence, Corporate Governance, West Africa, Banks