Abstract
This study examined the effect of audit quality proxied by Auditors’ Independence (ADI), Audit Firm Size (AFS), Auditor Tenure (ADT) and Audit Firm Specialization (ADS) on shareholders’ earnings (measured as Earnings per Share - EPS) and stock performance (measured as Market Price of Stock - MPS) of listed manufacturing companies in Nigeria, in the pre-and post-International Financial Reporting Standard (IFRS) periods. To achieve this, the study used eleven (11) listed manufacturing companies listed companies that had consistently published their audited annual financial reports from 2009 to 2018. Descriptive statistics, correlation analysis and Ordinary Least Square (OLS) univariate and multiple regression technique were adopted to analyse data obtained, with the ex-post facto research design employed in the methodology. The following results were obtained from the test of hypotheses. Auditors independence, audit firm size and auditors firm specialization have significant and positive impact on EPS and MPS. However, auditors’ tenure was found to significantly affect both EPS and MPS negatively. The IFRS moderated model results revealed that audit quality variables have higher and more positive impact on EPS and MPS in the post-IFRS period, relative to the pre-IFRS, with their effects being statistically significant using the wald restriction test. The findings have direct implication on earnings management and stock performance in the Nigerian Manufacturing Industry. Keywords: Earnings Per Share, Market Price, Auditors’ Independence, Audit Firm Size, Audit Tenure, Audit Firm Specialization DOI : 10.7176/RJFA/10-24-03 Publication date: December 31 st 2019
Highlights
INTRODUCTION Healy andWahlen (1999) posit that firms intentionally manage earnings in financial reporting to either mislead shareholders about the entity’s performance, or influence contractual outcomes that are based on accounting numbers
An ex-post facto research design is used to describe the statistical effect of one variable on another. It is most appropriate for this study because it allows for testing of expected effects between audit quality proxies and shareholders’ earnings of listed manufacturing companies in Nigeria and the making of predictions regarding such effects
5.0 Conclusion The paper reaches the following conclusions based on the stimulating result of data analysis and discussion: The study provided empirical evidence on the association between audit quality and shareholders’ earnings of listed Manufacturing companies in Nigeria
Summary
INTRODUCTION Healy andWahlen (1999) posit that firms intentionally manage earnings in financial reporting to either mislead shareholders about the entity’s performance, or influence contractual outcomes that are based on accounting numbers. The object of manipulation is not to meet analysts’ expectations of EPS but rather to achieve cognitive reference points such as zeros or fives in the two digital positions right of the decimal point (see Das and Zhang, 2003) This type of earnings management occurs when unmanipulated EPS falls only slightly below the user reference points. Discretionary accruals are used to increase income until EPS can be rounded up to these desired breakpoints This type of manipulation is often referred to as Cosmetic Earnings Management (CEM), its results are fatal as Thomas (1989) notes that even “small changes in reported earnings (EPS) near user reference points have disproportionately large effects on perceived firm value”
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