MODERATING EFFECT OF AUDIT QUALITY ON BOARD CHARACTERISTICS AND EARNINGS MANAGEMENT OF LISTED INSURANCE FIRMS IN NIGERIA

Abstract

This study empirically investigates the impact of corporate governance mechanisms on earnings management and examines the moderating roles of audit firm size and audit fees within the insurance subsector. Using a panel dataset of 242 firm-year observations, Ordinary Least Squares (OLS), Fixed Effects (FE), and Random Effects (RE) regression models were employed. The results reveal that board size (β = -0.079, p < 0.05) has a significant negative relationship with earnings management across all models, indicating that larger boards enhance monitoring effectiveness and reduce managerial discretion. Board independence, gender diversity, and ownership are statistically insignificant, suggesting limited influence on earnings manipulation. Conversely, cash flow from operations (β = -4.950, p < 0.01) consistently exhibits a strong negative effect, confirming that firms with healthier cash positions are less likely to engage in accrual-based earnings management. The moderating analysis shows that audit firm size strengthens the governance effect of board gender diversity (β = 0.025, p < 0.05), implying that the presence of female directors becomes more effective in reducing earnings manipulation when firms are audited by Big 4 auditors. However, the interaction effects involving audit fees are statistically insignificant, indicating that audit costs exert a limited moderating role. The models explain between 10% and 17% (R2 = 0.101–0.168) of the variation in earnings management. Overall, the findings underscore the importance of strong board structures and high-quality audits in constraining earnings manipulation and enhancing financial reporting credibility within the insurance industry.