THE NEXUS OF AUDIT QUALITY AND FINANCIAL PERFORMANCE OF MANUFACTURING FIRMS IN NIGERIA

Adeniyi Joshua ()
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Adeniyi Joshua: Department of Accounting, University of Port Harcourt

Malaysian E Commerce Journal (MECJ), 2023, vol. 8, issue 2, 68-74

Abstract: The study examined the nexus of audit quality and accounting performance using data from manufacturing firms quoted on the Nigeria Stock Exchange for the period 2012 to 2022. Ex-post facto research design and purposive sampling method was adopted on data sourced from Firms financial statement. Two measures of financial performance; Return on Assets, Net profit margin, and three audit quality variables of audit firm size, audit tenure and audit fees were adopted Hausmann test for selection of model and random-effects panel estimation framework was selected for estimating the relationships and testing hypotheses. The study used Pearson correlation coefficients to examine the required relationships to allow for the non-normality of the variables In this study, the test developed by Levin, Lin and Chu was used to examine the stationarity properties of the variables. This test assumes identical co-integration vectors among the variables. Given that each of the variable in the study is likely to exhibit differences in their emissions, especially as it relates to institutional and outcomes, heterogenous-based results from the Im, Pesaran and Shin and the Augmented Dickey-Fuller tests are carried out in the study. Both the Pedroni and Kao co-integration tests were also carried out. Crosss dependence test and VIF for multicollinearity was conducted on data set. Multipkle Regression method was used for the analysis to establish the nature of relationship. Findings confirm a unidirectional causality from Audit firm size, audit tenure and audit fees to Net profit margin while there is unidirectional causality from audit tenure to Returns on Asset. In terms of relationship Audit firm size and audit fees relate with Net profit margin of manufacturing firms significantly while audit tenure does not significantly affect Net profit margin. Audit firm Size, audit fees and audit tenure each has a significant impact on Return on Assets, although the effects of audit fees and audit tenure is positive, while that of audit firm size is negative. Based on findings we recommend that regulators should formulate policies to control audit fees and tenure of auditors to enhance corporate performance.

Keywords: Audit Quality; Return On Assets; Net Profit Margin. (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:zib:zbmecj:v:8:y:2023:i:2:p:68-74

DOI: 10.26480/mecj.02.2024.68.74

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