Moderating Effect of Audit Quality on the Relationship Between Board Attributes and Earnings Management of Quoted Industrial Goods Companies in Nigeria

Abstract

The study examined the relationship between board attributes and earnings management, with a particular focus on the moderating role of audit quality, in quoted industrial goods companies in Nigeria from 2015 to 2024. The board attributes considered were board independence, board gender diversity, board financial expertise, and board meeting frequency, while audit quality served as a moderator to determine whether it strengthens or mitigates the influence of these attributes on earnings management. Despite prior research emphasizing the direct effect of board characteristics on financial reporting quality, limited studies have explored the combined impact of board attributes and audit quality in Nigeria’s industrial goods sector, which plays a significant role in economic growth. The study adopted an ex-post facto research design and utilized panel data from annual reports and accounts of seventeen listed industrial goods companies over the ten-year period. Panel regression analysis was employed to test the hypotheses, supported by diagnostic tests to ensure robustness. The findings revealed that board independence and financial expertise positively and significantly influenced earnings management, suggesting that formal independence and technical knowledge alone may not constrain opportunistic reporting. Board gender diversity and board meeting frequency had mixed effects, with gender diversity showing limited influence and meeting frequency positively associated with earnings management. Audit quality was effective in directly reducing earnings management but demonstrated complex and, in some cases, counterintuitive moderating effects, indicating that it cannot fully substitute for weak internal governance. The study concludes that improving financial reporting quality requires complementary internal and external governance mechanisms, including empowered boards, effective meetings, ethical oversight, and high-quality audits. The findings provide empirical insights for regulators, policymakers, and corporate managers seeking to strengthen governance practices and reduce earnings manipulation in Nigeria.