Audit Committee Effectiveness and Sustainability Reporting in Emerging Markets: Evidence from Nigeria’s Listed Industrial Firms

Abstract

The rising incidence of unethical behaviour in financial reporting has become a recurring concern in corporate governance in Nigeria. Thus, managers’ discretionary manipulation of financial statements not only distorts the true financial position of firms but also jeopardizes the confidence and interests of shareholders and other stakeholders. Thus, the study examines the effect of audit committee effectiveness on sustainability reporting of listed industrial firms in Nigeria. Proxies to measure audit committee attributes are audit committee independence and audit committee meetings, while the sustainability reporting is proxied by ESG. The study concentrated on the period from 2019 to 2023. Panel data was used to analyse the data sourced from the individual financial reports of the listed industrial firms. The sample adopted five (5) listed industrial firms out the thirteen (13) listed industrial firms in Nigeria due to unavailability of balanced data of eight (8) firms. The study employed panel regression model to estimate the key relationship between audit committee attributes and sustainability reporting. The result shows that audit committee independence had positive significant effect on sustainability reporting of listed industrial firms in Nigeria. Also, the result shows that audit committee meetings have no significant effect on sustainability reporting of listed industrial firms in Nigeria. The study recommends that the management of industrial firms should increase the number of independent directors in the audit committees, with objectivity, experience and expertise that would minimize earnings management in order to greatly enhance their independence in discussing matters relating to sustainability reporting. Management of industrial firms should sustain the frequency of audit committee meetings. This has become necessary in view of the fact that frequent meetings will avail the audit committee members the opportunity to scrutinize the financial reports carefully.