Audit Rotation, Audit Tenure and Share Prices of Listed Nigerian Banks

Abstract

The credibility of financial reporting is fundamental for investor confidence and market stability, particularly in the banking sector where large volumes of public funds are managed. This study examines the influence of audit rotation and audit tenure on the share prices of listed Nigerian banks. Using an ex-post facto research design, the study analyses secondary data spanning fifteen years (2010–2024) across selected deposit money banks listed on the Nigerian Stock Exchange. Audit rotation and audit tenure are employed as proxies for audit quality, while share price serves as the measure of market valuation. Descriptive statistics, correlation analysis, unit root tests, and panel regression techniques are applied to determine the relationships among the variables. The findings reveal that audit tenure exerts a significant positive effect on share prices, suggesting that sustained auditor engagement enhances financial reporting credibility and investor confidence. Conversely, audit rotation exhibits a negative short-term impact on share prices, reflecting the temporary adjustment costs and knowledge gaps associated with changing auditors. These results align with the predictions of Agency Theory, which emphasizes the importance of monitoring mechanisms to protect shareholder interests, and Stakeholder Theory, which highlights the need for transparent reporting to maintain trust among market participants. The study concludes that both audit tenure and audit rotation are critical components of audit governance, and their strategic implementation can enhance investor perception and market valuation. Policymakers and regulators are encouraged to balance auditor continuity with independence requirements to optimize audit effectiveness and protect shareholder interests.