MODERATING EFFECT OF FIRM SIZE ON THE RELATIONSHIP BETWEEN AUDIT CHARACTERISTICS AND FINANCIAL PERFORMANCE OF LISTED NON-FINANCIAL COMPANIES IN NIGERIA

Abstract

This study investigates the moderating effect of firm size on the relationship between various audit characteristics and the financial performance of listed non-financial companies in Nigeria. Drawing on secondary data from 88 firms over a period from 2015 to 2024, the study utilized a longitudinal panel design and employed fixed-effects regression to analyze the data. Financial performance was measured by Return on Assets (ROA). The findings indicate a significant positive impact of both Audit Independence (AI) and Audit Financial Expertise (AFE) on ROA. Notably, the positive influence of financial expertise is amplified in larger firms, as shown by a 
significant interaction term (AFE*FS). This finding supports the notion that larger firms are better equipped to leverage audit expertise to enhance profitability, aligning with the resource-based view and providing a more nuanced perspective on prior studies that omitted this moderating effect. Conversely, the study reveals that Audit Size (AS) and Audit Gender Diversity (AGD) have no significant impact on ROA. Most strikingly, Audit Quality (AQ) is negatively correlated with ROA, a finding that contradicts some prior research but supports the view that in institutional environments like Nigeria, high audit quality may be associated with firms facing greater 
challenges, thus leading to lower profitability. The model as a whole explains 47% of the variance in ROA. The results suggest that policymakers, regulators, and corporate boards should prioritize strengthening auditor independence and financial expertise, particularly in larger firms. The study also cautions against the assumption that a larger audit firm or high perceived audit quality will 
automatically lead to improved financial performance. The findings highlight the importance of considering firm-specific and contextual factors when assessing the effectiveness of audit practices in emerging economies.