Effect of audit quality on market price of firms listed on the Nigerian stock market

Abstract

This study examines the effect of audit quality on share prices of Nigerian oil and gas firms using the regression and covariance analyses. Findings from the regression anlysis suggests that the composition of the audit committee and auditor type has significant effect on the market prices of quoted firms. There is a positive and significant relationship between audit committee composition and share prices. The covariance analysis suggests that while auditor type (BIG4/NONBIG4), auditor independence, and composition of the audit committee have a positive and significant relationship with market price of shares, tenure of external auditors has a negative relationship with the market price of shares. The implication of the findings is that audit quality will enhance reported earnings and hence the share market prices. The study recommends that firms should strive to associate with the BIG4 external auditors in Nigeria as such an association could enhance the credibility of the audit process and by extension their share prices; regulatory authorities should discourage joint audit and non-audit services to firms because it could threaten the independence of external auditors. Regulatory agencies should also present distinct statements on the tenure of the external auditors to be clearly stated in annual reports. This is because a long attachment between the external auditors and a client may threaten the independence of the external auditors.

Audit quality, firm performance and risk: evidence from Greece

“…The results reveal a clear negative relationship between audit quality and stock returns in both versions of the applied model, even though we expected a positive impact of audit quality on returns. This finding contradicts the relevant literature which has accentuated a positive correlation between a qualitative audit and the return of stock shares of the audited companies (Okolie, 2014;Reza and Quraishi, 2015;Al-Attar, 2017;Ugwunta et al, 2018). Notes: This table presents the results of a multifactor panel regression model, via which the performance of the Greek listed companies is regressed on a dummy variable which takes value 1 when the company uses a Big 4 (Big 6) audit firm (Panel A and Panel B, respectively) and zero otherwise, the natural logarithm of assets (Size), the natural logarithm of age (Age), the leverage ratio (total liabilities/total assets), the liquidity ratio (current assets/current liabilities) and the efficiency ratio (turnover/total assets).…”

“…the Big 4 and Big 6 dummies, is negatively related to stock return and risk. This finding contradicts the of Okolie (2014), Reza and Quraishi (2015), Al-Attar (2017) and Ugwunta et al (2018), which have accentuated a positive correlation between a qualitative audit and the return of stock shares of the audited companies. The size of the examined firms is also negatively related to stock return and risk.…”

“…The author finds that audit has a direct impact on stock prices, while an improved audit quality results in an improved financial performance of firms, which is reflected in their stock prices. Finally, Ugwunta et al (2018) assess the effect of audit quality on share prices in Nigerian oil and gas sector using regression and covariance analyses. The findings show that the type of auditor has a significant effect on the market prices of the listed firms.…”

Does earnings management mediate the relationship between audit quality and company performance? Evidence from Jordan

“…Finally, the high quality of auditing contributes to increase the authenticity of the financial information provided, which leads to a rise in the level of trust placed in these companies by stakeholders, investors and other interested parties (Ugwunta et al , 2018; Wijaya, 2020). Several prior studies, such as Habbash (2010), revealed a significant inverse relationship between audit quality and EM.…”

Mediating Effect of Audit Committee on the Connection Linking Auditor Attributes and Financial Reporting Quality: A Conceptual Framework

“…On the other hand, extraordinarily little evidence was set up between auditor size AS and FRQ (Hay, 2012;Umaru, 2014;Lin et al, 2017;Afifa et al, 2020), none-audit service fees NASF, (Mgbame, Izedonmi et al, 2012;Patrick et al, 2017;Ugwunta et al, 2018), suggesting more investigation is needed in this area of study. As a result, other attributes of auditors' such as auditor firm age, auditor tangibility, auditor responsiveness, auditor reliability, auditor assurance, auditor empathy and client financial health (Gaynor et al, 2016), need to be studied and re-evaluated further for better inspection of FRQ.…”