EFFECT OF AUDITORS’ INDEPENDENCE AND CAPITAL STRUCTURE ON EARNINGS MANAGEMENT OF QUOTED CONSUMER GOODS FIRMS IN NIGERIA

Abstract

This study examined the effect of capital structure and auditor independence on earnings
management. The study design used was causal. All of the quoted consumer goods companies in
Nigeria make up the study population; 20 of these were specifically chosen as a sample size to
span a decade, from 2013 to 2022. The annual reports of the chosen firms provided the data used
in this investigation. The data were analyzed using panel regression analysis and descriptive
statistics. Audit fee was used as a proxy for audit independence, while long-term debt (LHTD),
short-term debt (SHTD), and the debt-to-equity ratio (DETR) were used to quantify capital
structure. Discretionary accruals were used as a proxy of earnings management (EM). The
analysis's outcome showed that AUDI and LHTD have a positive and significant effect on EM with
t-stats and p-values of (2.44, 2.66) and (0.014, 0.007) correspondingly. DETR was shown to have
a significant and negative connection with EM, as indicated by a t-stat. Of -3.30 and a p-value of
0.0009. It was discovered that SHTD had no noteworthy impact on EM. The study concludes that
the capital structure and audit independence of listed Nigerian consumer goods companies have
a remarkable effect on EM. The study recommends that the audit committee should make sure that
exorbitant audit costs do not jeopardise the independence of the auditor. Stakeholders with a large
long-term debt and debt-equity ratio debt-equity could have strict governance and monitoring
procedures.
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