Moderating Effect of Audit Quality on Financial Risks and Market Value of Quoted Deposit Money Banks in Nigeria

Abstract

The concern for examining moderating effect of audit quality on financial risks and market value has been rekindled by the persistent global corporate scandals and business failures of audited companies with high market value. The study selected thirteen out of the fourteen quoted deposit money banks on Nigeria Exchange Limited (NGX) through purposive sampling technique for the study period of January 2011 to
2024 December. The study adopted Ex-facto research design and the data were analysed using E-view under fixed effect panel regression model. The study result revealed capital adequacy risk was negative and significant in both direct and moderating effect on market value while credit risk was negative and significant in the direct model while the moderating effect was insignificant. In contrast liquidity risk and audit quality were insignificant to market value. The study concluded that
increase in liquidity risk and capital adequacy risk influences bank performance in line with trading rate and volume of quoted banks, while increase credit risk significantly reduces market value of banks. Audit committee composition was not sufficient enough to reduce financial risks of banks. Therefore, it is recommended that the Central Bank of Nigeria and Financial Reporting Council of Nigeria should set a risks metric level for liquidity, capital adequacy and credit risks for quoted banks as well as increase the minimum membership number of financial expertise in audit committee by 50% ratio of total audit committee members. The SEC should make calculation, reporting and disclosure of financial risks mandatory for continuous enlistment of quoted banks in Nigeria.
Keywords: audit quality, financial risks, lemon theory, market value