AUDITOR ROTATION, AUDIT COMMITTEE INDEPENDENCE AND STOCK RETURNS OF CONSUMER GOODS FIRMS IN NIGERIA

Abstract
The study investigates the moderating role of Audit Committee Independence on the relationship between Auditor rotation and Stock Returns of consumer goods firms that are listed on the Nigerian Exchange group. Data were gathered from the annual financial reports of the companies chosen for this study covering the period from 2008-2019. Panel data regression was employed for analysis. It was discovered that Auditor Rotation has a positive but insignificant relationship with Stock Returns, and that, Audit Committee Independence has no moderating effect on the relationship between Auditor Rotation and Stock Returns. We, therefore, recommend that though, mandatory rotation of audit firms would enhance the auditor’s independence, the requirement will be time-consuming and costly for both the auditor and the client. The time consumption would be as a result of the audit firm starting from scratch with each new audit client to acquire the client-specific knowledge required to conduct the audit and this would create a large initial cost in the first years of an auditor’s tenure, it should therefore not be encouraged in Nigeria.
Keywords: Auditor Rotation, Stock Returns, Audit committee Independence, Firm Size, Growth opportunities
Introduction
Investors in the capital market are not involved in the management of the firms they have bought their shares from. What they expect is a return on their investment which comes to them in form of Stock Returns. Stock prices usually vary because they depend on the movement in stock prices. Good firms usually increase their profits over time and investors reward these greater earnings with stock prices. The higher stock prices translate into Stock Returns for the investors including the dividend paid on such shares. Independent auditors usually offer their services to firms in the area of Audit. His role here is the provision of independent judgment on the reliability or otherwise of the financial statements prepared by his client. He is therefore seen as a control mechanism for the management so that the management can present financial statements that are free from misstatements, errors, and bias. One of the proxies often used as a measure of the quality audit is Auditor Rotation (Gavieous, 2007; Augustsson &Osterlind, 2017; Imegi & Oladutire, 2018). Auditor rotation is said to be one of the measures of Audit quality that could help in maintaining Auditors’ Independence, objectivity, and professional skepticism. They also maintain that rotation will bring a fresh look at firms’ financial statements which might increase the likely hood that, the auditor would be able to detect misstatements or challenge accounting practices that are questionable. If the accounting firm now rotates its external auditor, the market is expected to react as the change is welcomed by the market, this is indicated in changes in prices of the shares of the firms that are concerned.
In Nigeria, most of the previous studies have only examined the direct relationship between Auditor rotation and Stock Returns. The motivation for this study, therefore, is to introduce Audit Committee Independence as a variable moderating the existing relationship between Auditor rotation and Stock Returns of firms in Nigeria using Consumer goods firms listed on the Nigerian Exchange group. The capital market in Nigeria is still developing therefore the structural and institutional features of its capital market are different from those of the developed capital markets. The study is therefore providing empirical evidence about: First, how does Auditor Rotation influence stock returns, and secondly, how does the audit committee independence moderate the existing relationship between Auditor Rotation and Stock Returns. The study is significant in the following ways; First, the regulators who are seeking to strengthen existing regulatory policies that will enhance audit quality and the integrity of financial reports of firms not just listed on the NEG but also in the corporate world, in general, will find the work useful. Second, the findings will also help auditors in the performance of their functions most especially in quality reporting. Third, it will also add to the existing body of knowledge. Fourth, it will also guide the capital market operators in their advisory services.