Audit committee characteristics and firm financial performance of quoted industrial goods firms in Nigeria

https://doi.org/10.35912/ijfam.v5i4.1718
Published: Mar 8, 2024

Abstract:

Purpose: This study examines the effects of audit committee characteristics on the financial performance of listed industrial goods firms in Nigeria.

Research methodology: This study used an ex-post factor research design and utilized secondary data collected from the annual reports and accounts of thirteen (13) sampled industrial goods firms for a period of 10 years (2013-2022). The sample of firms was obtained using a purposive sampling technique. Data were analyzed using descriptive statistics, correlation, and regression analysis (GLS Random Effect) with the aid of Stata 13.

Results: The findings reveal that an insignificant positive effect exists between audit committee size and financial performance (ROA and ROE), while audit committee independence has a significant negative effect on return on assets (ROA) and a negative insignificant effect on return on equity (ROE), and audit committee meetings have a positive significant effect on asset (ROA) and a positive insignificant effect on return on equity (ROE).

Limitations: The research is limited to only those companies in the industrial goods sector listed on the Nigerian Stock Exchange from 2013 to 2022 and only focuses on the effect of audit committee characteristics on firm financial performance. There was also incomplete data, which did not allow for a complete and thorough analysis of the entire sector.

Contribution: This study contributes to the existing body of literature on the effect of audit committees on the financial performance of Nigeria’s listed industrial goods sector. It provides insights that can assist the board in formulating appropriate strategies to improve their performance.

Keywords:
1. Audit committee characteristics
2. Audit committee size
3. Audit committee independence
4. Audit committee meetings
Authors:
Samuel Enejoh Abu
Prince Abubakar Audu University, Anyigba, Kogi State, Nigeria
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How to Cite
Abu, S. E. (2024). Audit committee characteristics and firm financial performance of quoted industrial goods firms in Nigeria. International Journal of Financial, Accounting, and Management, 5(4), 445–458. https://doi.org/10.35912/ijfam.v5i4.1718
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Issue & Section
Vol. 5 No. 4 (2024): March
Articles
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This work is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

References

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    Abbott, L. J., Parker, S., & Peters, G. F. (2004). Audit committee characteristics and restatements. Auditing: A Journal of Practice & Theory, 23(1), 69-87.

    Al-Daoud, K. I., Saidin, S. Z., & Abidin, S. (2016). Board meeting and firm performance: Evidence from the Amman stock exchange. Corporate Board: role, duties and composition, 12(2), 6-11.

    Al-Mamun, A., Yasser, Q. R., Rahman, M. A., Wickramasinghe, A., & Nathan, T. M. (2014). Relationship between audit committee characteristics, external auditors and economic value added (EVA) of public listed firms in Malaysia. Corporate Ownership & Control, 12(1), 899-910.

    Al-Matari, E. M., Fadzil, F., & Al-Swidi, A. K. (2014). The moderating effect of board diversity on the relationship between audit committee characteristics and firm performance in Oman: Empirical study. Middle East Journal of Scientific Research, 21(5), 792-801.

    Al-Okaily, J., & Naueihed, S. (2020). Audit committee effectiveness and family firms: impact on performance. Management decision, 58(6), 1021-1034.

    Al-Thuneibat, A. (2006). The Auditing: The Light of International Auditing Standards and Local Laws and Regulations: Theory and Application. University of Jordan.

    Alqatamin, R. M. (2018). Audit committee effectiveness and company performance: Evidence from Jordan. Accounting and Finance Research, 7(2), 48.

    Amer, M., Ragab, A. A., & Shehata, S. E. (2014). Audit committee characteristics and firm performance: Evidence from Egyptian listed companies. Paper presented at the Proceedings of 6th Annual American Business Research Conference.

    Anderson, R. C., & Reeb, D. M. (2003). Founding?family ownership and firm performance: evidence from the S&P 500. The Journal of Finance, 58(3), 1301-1328.

    Arens, A. A., Elder, R. J., & Beasley, M. S. (2012). Auditing and assurance services: an integrated approach: Prentice Hall.

    Bansal, N., & Sharma, A. K. (2016). Audit committee, corporate governance and firm performance: Empirical evidence from India. International Journal of economics and Finance, 8(3), 103.

    Bauer, R., Eichholtz, P., & Kok, N. (2010). Corporate governance and performance: The REIT effect. Real estate economics, 38(1), 1-29.

    Bazhair, A. H. (2022). Audit committee attributes and financial performance of Saudi non-financial listed firms. Cogent Economics & Finance, 10(1), 2127238.

    Bédard, J., & Gendron, Y. (2010). Strengthening the financial reporting system: can audit committees deliver? International journal of auditing, 14(2), 174-210.

    Bin, A., & Mohammed, G. (2022). The Effect of Audit Committee Characteristics on Firm Performance: Evidence from Non-Financial Sectors in Oman. Asian economic and financial review, 12(9), 816-836.

    Carcello, J. V., Hermanson, D. R., & Neal, T. L. (2002). Disclosures in audit committee charters and reports. Accounting horizons, 16(4), 291-304.

    Dalton, D. R., Daily, C. M., Johnson, J. L., & Ellstrand, A. E. (1999). Number of directors and financial performance: A meta-analysis. Academy of Management Journal, 42(6), 674-686.

    Dar, L., Naseem, A., & Rehman, R. U. (2011). Corporate Governance and Firm Performance: A Case Study of Pakistan Oil and Gas Companies listed In Karachi Stock Exchange. Global Journal of Management And Business Research, 11(8).

    Ehiedu, V. C., & Toria, G. (2022). Audit indicators and financial performance of manufacturing firms in Nigeria. Linguistics and Culture Review, 6(S1), 14-41.

    Fama, E. F., & Jensen, M. C. (1983). Separation of ownership and control. The journal of law and Economics, 26(2), 301-325.

    Gurusamy, P. (2017). Board characteristics, audit committee and ownership structure influence on firm performance of manufacturing firms in India. International Journal of Business and Economics Research, 6(4), 73-87.

    Hsu, H.-E. (2010). The relationship between board characteristics and financial performance: An empirical study of United States initial public offerings. International Journal of Management, 27(2), 332.

    Hsu, W.-Y., & Petchsakulwong, P. (2010). The impact of corporate governance on the efficiency performance of the Thai non-life insurance industry. The Geneva Papers on Risk and Insurance-Issues and Practice, 35, S28-S49.

    Ibrahim, H. B., Ouma, C., & Koshal, J. O. (2019). Effect of audit committee independence on the financial performance of insurance firms in Kenya. International Journal of Research in Business and Social Science (2147-4478), 8(6), 15-24.

    Jensen, M. C., & Meckling, W. H. (1976). Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure. Journal of Financial Economics, 3(4), 305-360.

    Juhmani, O. (2017). Audit committee characteristics and earnings management: The case of Bahrain. International Journal of Accounting and Financial Reporting, 7(1), 11-31.

    Kallamu, B. S., & Saat, N. A. M. (2015). Audit committee attributes and firm performance: evidence from Malaysian finance companies. Asian Review of Accounting, 23(3), 206-231.

    Karamanou, I., & Vafeas, N. (2005). The association between corporate boards, audit committees, and management earnings forecasts: An empirical analysis. Journal of Accounting Research, 43(3), 453-486.

    Klein, A. (2002). Audit committee, board of director characteristics, and earnings management. Journal of accounting and economics, 33(3), 375-400.

    Modum, U., Ugwoke, R. O., & Onyeanu, E. O. (2013). Audit committees and corporate performance of selected companies quoted in the Nigerian stock exchange: a perception analysis. Corporate Governance, 4(16), 115-125.

    Mollah, S., & Talukdar, B. (2007). Ownership Structure, Corporate Governance, and Firm's Performance in Emerging Markets: Evidence from Bangaldesh. Corporate Governance, and Firm's Performance in Emerging Markets: Evidence from Bangaldesh (April 30, 2007). The International Journal of Finance, 19(1).

    Ntim, C. G., & Osei, K. A. (2011). The impact of corporate board meetings on corporate performance in South Africa. African Review of Economics and Finance, 2(2), 83-103.

    Oroud, Y. (2019). The effect of audit committee characteristics on the profitability: Panel data evidence. International Journal of economics and Finance, 11(4), 104-113.

    Osemene, O., & Fakile, O. (2018). Effectiveness of audit committee and financial performance of deposit money banks in Nigeria.

    Osevwe-Okoroyibo, E., & Emeka-Nwokeji, N. (2021). Examining Effect Of Audit Committee Attributes On Firm Performance: Evidence From Listed Food And Beverages Firms In Nigeria. European Journal of Accounting, Auditing and Finance Research, 9(8), 26-43.

    Peasnell, K. V., Pope, P. F., & Young, S. (2001). The characteristics of firms subject to adverse rulings by the Financial Reporting Review Panel. Accounting and business research, 31(4), 291-311.

    Qeshta, M. H., Alsoud, G. F. A., Hezabr, A. A., Ali, B. J., & Oudat, M. S. (2021). Audit committee characteristics and firm performance: Evidence from the insurance sector in Bahrain. Revista Geintec-Gestao Inovacao E Tecnologias, 11(2), 1666-1680.

    Raghunandan, K., & Rama, D. V. (2007). Determinants of audit committee diligence. Accounting horizons, 21(3), 265-279.

    Rahman, M. M., Meah, M. R., & Chaudhory, N. U. (2019). The impact of audit characteristics on firm performance: an empirical study from an emerging economy. The Journal of Asian Finance, Economics and Business, 6(1), 59-69.

    Rahman, R. A., & Ali, F. H. M. (2006). Board, audit committee, culture and earnings management: Malaysian evidence. Managerial auditing journal, 21(7), 783-804.

    Reddy, K., Locke, S., & Scrimgeour, F. (2010). The efficacy of principle?based corporate governance practices and firm financial performance: An empirical investigation. International Journal of Managerial Finance, 6(3), 190-219.

    Rezaee, Z. (2008). Corporate governance and ethics: John Wiley & Sons.

    Saleh, N. M., Iskandar, T. M., & Rahmat, M. M. (2007). Audit committee characteristics and earnings management: Evidence from Malaysia. Asian Review of Accounting, 15(2), 147-163.

    Sultana, N. (2015). Audit committee characteristics and accounting conservatism. International journal of auditing, 19(2), 88-102.

    Vafeas, N. (1999). Board meeting frequency and firm performance. Journal of Financial Economics, 53(1), 113-142.

    Wobo, H. O., & Ofurum, C. O. (2021). Audit Committee Characteristics and Financial Performance of Deposit Money Banks in Nigeria. International Journal of Social Science and Humanities Research, 9(3), 517-524.

  1. Aanu, O. S., Odianonsen, I. F., & Foyeke, O. I. (2014). Effectiveness of audit committee and firm financial performance in Nigeria: An empirical analysis. Journal of Accounting and Auditing, 1.
  2. Abbott, L. J., Parker, S., & Peters, G. F. (2004). Audit committee characteristics and restatements. Auditing: A Journal of Practice & Theory, 23(1), 69-87.
  3. Al-Daoud, K. I., Saidin, S. Z., & Abidin, S. (2016). Board meeting and firm performance: Evidence from the Amman stock exchange. Corporate Board: role, duties and composition, 12(2), 6-11.
  4. Al-Mamun, A., Yasser, Q. R., Rahman, M. A., Wickramasinghe, A., & Nathan, T. M. (2014). Relationship between audit committee characteristics, external auditors and economic value added (EVA) of public listed firms in Malaysia. Corporate Ownership & Control, 12(1), 899-910.
  5. Al-Matari, E. M., Fadzil, F., & Al-Swidi, A. K. (2014). The moderating effect of board diversity on the relationship between audit committee characteristics and firm performance in Oman: Empirical study. Middle East Journal of Scientific Research, 21(5), 792-801.
  6. Al-Okaily, J., & Naueihed, S. (2020). Audit committee effectiveness and family firms: impact on performance. Management decision, 58(6), 1021-1034.
  7. Al-Thuneibat, A. (2006). The Auditing: The Light of International Auditing Standards and Local Laws and Regulations: Theory and Application. University of Jordan.
  8. Alqatamin, R. M. (2018). Audit committee effectiveness and company performance: Evidence from Jordan. Accounting and Finance Research, 7(2), 48.
  9. Amer, M., Ragab, A. A., & Shehata, S. E. (2014). Audit committee characteristics and firm performance: Evidence from Egyptian listed companies. Paper presented at the Proceedings of 6th Annual American Business Research Conference.
  10. Anderson, R. C., & Reeb, D. M. (2003). Founding?family ownership and firm performance: evidence from the S&P 500. The Journal of Finance, 58(3), 1301-1328.
  11. Arens, A. A., Elder, R. J., & Beasley, M. S. (2012). Auditing and assurance services: an integrated approach: Prentice Hall.
  12. Bansal, N., & Sharma, A. K. (2016). Audit committee, corporate governance and firm performance: Empirical evidence from India. International Journal of economics and Finance, 8(3), 103.
  13. Bauer, R., Eichholtz, P., & Kok, N. (2010). Corporate governance and performance: The REIT effect. Real estate economics, 38(1), 1-29.
  14. Bazhair, A. H. (2022). Audit committee attributes and financial performance of Saudi non-financial listed firms. Cogent Economics & Finance, 10(1), 2127238.
  15. Bédard, J., & Gendron, Y. (2010). Strengthening the financial reporting system: can audit committees deliver? International journal of auditing, 14(2), 174-210.
  16. Bin, A., & Mohammed, G. (2022). The Effect of Audit Committee Characteristics on Firm Performance: Evidence from Non-Financial Sectors in Oman. Asian economic and financial review, 12(9), 816-836.
  17. Carcello, J. V., Hermanson, D. R., & Neal, T. L. (2002). Disclosures in audit committee charters and reports. Accounting horizons, 16(4), 291-304.
  18. Dalton, D. R., Daily, C. M., Johnson, J. L., & Ellstrand, A. E. (1999). Number of directors and financial performance: A meta-analysis. Academy of Management Journal, 42(6), 674-686.
  19. Dar, L., Naseem, A., & Rehman, R. U. (2011). Corporate Governance and Firm Performance: A Case Study of Pakistan Oil and Gas Companies listed In Karachi Stock Exchange. Global Journal of Management And Business Research, 11(8).
  20. Ehiedu, V. C., & Toria, G. (2022). Audit indicators and financial performance of manufacturing firms in Nigeria. Linguistics and Culture Review, 6(S1), 14-41.
  21. Fama, E. F., & Jensen, M. C. (1983). Separation of ownership and control. The journal of law and Economics, 26(2), 301-325.
  22. Gurusamy, P. (2017). Board characteristics, audit committee and ownership structure influence on firm performance of manufacturing firms in India. International Journal of Business and Economics Research, 6(4), 73-87.
  23. Hsu, H.-E. (2010). The relationship between board characteristics and financial performance: An empirical study of United States initial public offerings. International Journal of Management, 27(2), 332.
  24. Hsu, W.-Y., & Petchsakulwong, P. (2010). The impact of corporate governance on the efficiency performance of the Thai non-life insurance industry. The Geneva Papers on Risk and Insurance-Issues and Practice, 35, S28-S49.
  25. Ibrahim, H. B., Ouma, C., & Koshal, J. O. (2019). Effect of audit committee independence on the financial performance of insurance firms in Kenya. International Journal of Research in Business and Social Science (2147-4478), 8(6), 15-24.
  26. Jensen, M. C., & Meckling, W. H. (1976). Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure. Journal of Financial Economics, 3(4), 305-360.
  27. Juhmani, O. (2017). Audit committee characteristics and earnings management: The case of Bahrain. International Journal of Accounting and Financial Reporting, 7(1), 11-31.
  28. Kallamu, B. S., & Saat, N. A. M. (2015). Audit committee attributes and firm performance: evidence from Malaysian finance companies. Asian Review of Accounting, 23(3), 206-231.
  29. Karamanou, I., & Vafeas, N. (2005). The association between corporate boards, audit committees, and management earnings forecasts: An empirical analysis. Journal of Accounting Research, 43(3), 453-486.
  30. Klein, A. (2002). Audit committee, board of director characteristics, and earnings management. Journal of accounting and economics, 33(3), 375-400.
  31. Modum, U., Ugwoke, R. O., & Onyeanu, E. O. (2013). Audit committees and corporate performance of selected companies quoted in the Nigerian stock exchange: a perception analysis. Corporate Governance, 4(16), 115-125.
  32. Mollah, S., & Talukdar, B. (2007). Ownership Structure, Corporate Governance, and Firm's Performance in Emerging Markets: Evidence from Bangaldesh. Corporate Governance, and Firm's Performance in Emerging Markets: Evidence from Bangaldesh (April 30, 2007). The International Journal of Finance, 19(1).
  33. Ntim, C. G., & Osei, K. A. (2011). The impact of corporate board meetings on corporate performance in South Africa. African Review of Economics and Finance, 2(2), 83-103.
  34. Oroud, Y. (2019). The effect of audit committee characteristics on the profitability: Panel data evidence. International Journal of economics and Finance, 11(4), 104-113.
  35. Osemene, O., & Fakile, O. (2018). Effectiveness of audit committee and financial performance of deposit money banks in Nigeria.
  36. Osevwe-Okoroyibo, E., & Emeka-Nwokeji, N. (2021). Examining Effect Of Audit Committee Attributes On Firm Performance: Evidence From Listed Food And Beverages Firms In Nigeria. European Journal of Accounting, Auditing and Finance Research, 9(8), 26-43.
  37. Peasnell, K. V., Pope, P. F., & Young, S. (2001). The characteristics of firms subject to adverse rulings by the Financial Reporting Review Panel. Accounting and business research, 31(4), 291-311.
  38. Qeshta, M. H., Alsoud, G. F. A., Hezabr, A. A., Ali, B. J., & Oudat, M. S. (2021). Audit committee characteristics and firm performance: Evidence from the insurance sector in Bahrain. Revista Geintec-Gestao Inovacao E Tecnologias, 11(2), 1666-1680.
  39. Raghunandan, K., & Rama, D. V. (2007). Determinants of audit committee diligence. Accounting horizons, 21(3), 265-279.
  40. Rahman, M. M., Meah, M. R., & Chaudhory, N. U. (2019). The impact of audit characteristics on firm performance: an empirical study from an emerging economy. The Journal of Asian Finance, Economics and Business, 6(1), 59-69.
  41. Rahman, R. A., & Ali, F. H. M. (2006). Board, audit committee, culture and earnings management: Malaysian evidence. Managerial auditing journal, 21(7), 783-804.
  42. Reddy, K., Locke, S., & Scrimgeour, F. (2010). The efficacy of principle?based corporate governance practices and firm financial performance: An empirical investigation. International Journal of Managerial Finance, 6(3), 190-219.
  43. Rezaee, Z. (2008). Corporate governance and ethics: John Wiley & Sons.
  44. Saleh, N. M., Iskandar, T. M., & Rahmat, M. M. (2007). Audit committee characteristics and earnings management: Evidence from Malaysia. Asian Review of Accounting, 15(2), 147-163.
  45. Sultana, N. (2015). Audit committee characteristics and accounting conservatism. International journal of auditing, 19(2), 88-102.
  46. Vafeas, N. (1999). Board meeting frequency and firm performance. Journal of Financial Economics, 53(1), 113-142.
  47. Wobo, H. O., & Ofurum, C. O. (2021). Audit Committee Characteristics and Financial Performance of Deposit Money Banks in Nigeria. International Journal of Social Science and Humanities Research, 9(3), 517-524.