Regulatory changes and reporting quality: the moderating role of firm characteristics

Abstract

The objective of this study is to investigate the effect of regulatory changes on financial reporting quality and audit fees and to further test whether this effect was moderated by firm characteristics (i.e. abnormal audit fees, political connections and overlapping directorship) in Nigeria. This study utilized the data of 90 companies listed on the Nigerian stock exchange over the period 2008–2013. Using Generalized Method of Moments (GMM) technique that takes into account the endogeneity nature of financial reporting quality and audit fees model, the results indicated that financial reporting quality improved in the regulatory changes period. However, abnormal audit fees, political connection and overlapping directorship deteriorated the effect. Accordingly, future regulatory reforms must be cognizant of these factors. Even though there are abundant empirical studies on financial regulatory changes and their effects on financial reporting quality, this study provides additional insights into the regulatory change literature by investigating how firm characteristics (abnormal audit fees, political connection and overlapping directorship) moderate the effect of regulatory changes particularly in Nigeria, one of the less developed and underresearched capital markets in the world. Further, the findings of this study are robust with respect to the issues of unobserved heterogeneity and endogeneity, which previous studies had failed to consider.

Regulatory changes and audit fees: the moderating effect of overlapping directorship and financial reporting quality

“…The present study argues that the various regulatory reforms in Nigeria will affect auditors' pricing decisions since the various regulatory changes will improve the financial reporting architecture. The findings of Abdulmalik and CheAhmed (2019) confirm the assertion of an improvement in financial reporting quality. These authors reported that the regulatory changes arising from the creation of FRCN in 2011 and the adoption of IFRS in 2013 have improved the financial reporting quality in Nigeria.…”

“…Hence, skill transformation might be required to keep abreast of the changes on the part of an auditor. For example, the global move from precise to less precise accounting standards requires much professional judgement (Abdulmalik and CheAhmed, 2019). Regulatory reform will necessitate the deployment of financial resources for retraining to ensure that audit team members possess the skills needed in the new regulatory regime (Lin and Yen, 2016).…”

Board governance mechanisms and sustainability reporting quality: A theoretical framework

“…Therefore, to address the issues surrounding SRQ, the role of the board in terms of corporate governance mechanisms is pertinent, hence the transparency and credibility of corporate reporting bother on effective board in terms of monitoring (MCCG, 2017;Osazuwa et al, 2017). Although, corporate scandals like Enron, WorldCom and others like Sime Darby, Kenmark Ltd, and Linear Corporation in Malaysia, were attributed to corporate governance failure which has caused stakeholders much concern in terms of the credibility of corporate reporting (Abdulmalik & Che-Ahmad, 2019;Ofoegbu et al, 2018). This situation has informed several reforms in corporate governance worldwide and specifically in Malaysia (Abdulmalik & Che-Ahmad, 2019).…”

“…Although, corporate scandals like Enron, WorldCom and others like Sime Darby, Kenmark Ltd, and Linear Corporation in Malaysia, were attributed to corporate governance failure which has caused stakeholders much concern in terms of the credibility of corporate reporting (Abdulmalik & Che-Ahmad, 2019;Ofoegbu et al, 2018). This situation has informed several reforms in corporate governance worldwide and specifically in Malaysia (Abdulmalik & Che-Ahmad, 2019). For example, the Revised Malaysian Code of Corporate Governance (MCCG) 2017 and the revised Malaysian Sustainability Reporting Guide (SRG) in 2018 (Bursa Malaysia, , 2018.…”