AUDIT QUALITY AND MARKET PERFORMANCE: ARDL APPROACH

Abstract

The study examined the effect of audit quality on market performance using data from manufacturing firms quoted on the Nigeria Stock Exchange for the period 2012 to 2022. Ex-post facto research design and census sampling method was adopted on data sourced from Firms financial statement.Market performance measured by Tobin Q and market price and three audit quality variables of audit firm size, audit tenure and audit fees were adopted. Random effect strategy was adopted from Hausmann Test. Autoregressive distributive lag was used to establish short run and long run effect while Granger causality test was used to determine the direction of causality. Findings indicate that causality runs from Audit firm size to market price and from audit fees to Tobin Q. Simultaneously, causality run from Market price to audit tenure indicating that investor’s perception of audited financial statements can spur tenure elongation for auditors. In terms of relationship, audit fees and audit tenure significantly and positively affect Tobin Q, but the effect of audit firm size is insignificant.Audit firm size, audit fees and audit tenure all exert significant effects on market price although the effect of audit firm size is negative, while those of audit fees and audit tenure are positive. Based on findings we recommend that regulators should formulate. The implication of the findings is that audit firm size does not influence market reactions to publish financial statements and that experienced auditors with quality work can be retained as this does not impair market reaction. Also, proper remuneration of auditors is a spur to quality auditing