Audit Quality, Ownership Structure, and Agency Cost in Nigerian Quoted Industrial Goods Firms

Abstract

This study examines the relationship between Ownership Structure, Audit Quality, and agency cost of Nigerian quoted industrial goods companies. Data from the annual reports of nine (9) selected companies whose data were readily available at the time of the study were included in the sample over a period of eleven years (2011-2021) on audit quality, managerial ownership share, institutional ownership share, administrative expenses ratio, and payout ratio were analyzed. The primary purpose of this study was to investigate the relationship between Audit Quality, Ownership Structure and agency cost of quoted Nigerian industrial goods companies. The data were analyzed using descriptive and inferential statistical techniques, including correlation matrix and fixed panel model regression. The correlation analysis revealed that all variables AER, AUQ, IOS, MOS, and PAR had correlation coefficients that were positive or negative and less than 0.9. Moreover, the results of the Fixed Effect panel model regression indicated that the probability values of the predictors were less than the study's adopted 5% level of significance (p-values 0.05), except for managerial ownership share and institutional ownership share, whose probability values were greater than 5% level of significance (p-values > 0.05). The study concluded that there is a significant relationship between the Audit Quality, Ownership Structure of industrial goods companies and agency costs. As a result, it was suggested that there should be a balance between equity ownership managers and institutional investors to reduce agency costs and that audit quality should be improved by utilizing the Big-4 to reduce asymmetric information by managers and minimize agency conflicts.