Moderating Effect of Firm Size on the Relationship between Managerial Ownership and Audit Quality of Listed Manufacturing Firms in Nigeria

Abstract

This study investigates the moderating role of firm size on the relationship between managerial ownership and audit quality in the Nigerian manufacturing sector. Using secondary data from 390 firm-year observations of listed manufacturing companies, logistic regression analysis was employed to examine the hypothesized relationships. The findings reveal that managerial ownership positively influences audit quality, suggesting that higher managerial stakes align managers' interests with those of shareholders, thereby promoting financial transparency and accountability. However, the interaction between managerial ownership and firm size shows a significant negative effect, indicating that as firms grow larger, the positive influence of managerial ownership on audit quality diminishes. This outcome highlights the complexities introduced by firm size, as larger firms often face increased operational challenges and governance complexities that may dilute the effectiveness of managerial ownership in enhancing audit quality. The study's results underscore the importance of considering firm-specific characteristics in corporate governance strategies to ensure effective monitoring and audit processes. Recommendations include the adoption of robust governance frameworks tailored to firm size and the reinforcement of independent board oversight in larger firms. Additionally, policymakers are encouraged to implement regulations that promote audit quality across firms of varying sizes. This study contributes to the literature by providing empirical evidence on the moderating role of firm size in the managerial ownership-audit quality nexus, particularly in a developing economy context. Future research could explore other firm-specific moderators or extend the analysis to other industries and countries to provide broader insights into corporate governance and audit quality dynamics.