AUDIT QUALITY AND SHAREHOLDERS' WEALTH MAXIMIZATION AMONG LISTED MANUFACTURING FIRMS IN NIGERIA

Abstract

This work investigates how audit quality affects the creation of shareholder wealth of listed manufacturing companies in Nigeria, using Economic Value Added (EVA) as proxy for shareholder wealth. The study uses a panel data set of 350 firm-year observations and the Panel Corrected Standard Error (PCSE) method is used to address the heteroskedasticity and serial correlation. The findings suggest that the size of the audit firm and its audit industry expertise have a positive effect on EVA, while the size of the firm and audit fees have a negative effect on EVA, and audit tenure and leverage are neutral. This study extends the existing body of literature on the corporate governance by looking at the business performance from an accounting- based point of view to a true value creation point of view in an emerging market environment. The originality comes from the fact that it finds the hidden effect of audit fees on capital drain which was hidden in the model using robust PCSE modelling. It is therefore important that manufacturing executives seek specialist auditors in their sector and regulators draw up competitive fee reference points to ensure no predatory compliance cost.