Audit Quality and Earnings Management: Effect of Auditor Industry Specialization in Nigeria

This study examines the effect of auditor industry specialization on earnings management among publicly listed firms in Nigeria over the period 2011 to 2025. Drawing on a balanced panel dataset of 148 firms yielding 2,220 firm-year observations, and employing pooled ordinary least squares, fixed-effects, and random-effects panel regression models, the study finds that auditor industry specialization exerts a statistically significant and economically meaningful negative effect on the absolute value of discretionary accruals — the primary proxy for earnings management. These results are robust to the inclusion of firm-level controls (firm size, return on assets, leverage, loss dummy, Big 4 dummy, and auditor tenure), corporate governance controls (board independence), and industry and year fixed effects. Post-estimation diagnostics confirm the absence of multicollinearity, model misspecification, and endogeneity threats. The findings reinforce agency and signalling theory arguments that specialist auditors, by virtue of their deep sector knowledge and reputational capital, constrain opportunistic financial reporting more effectively than their non-specialist counterparts. This study contributes to the nascent but growing empirical literature on audit quality in Sub-Saharan Africa and offers direct policy implications for the Financial Reporting Council of Nigeria, the Securities and Exchange Commission, and listed firm governance practitioners.