







































American Interdisciplinary Journal of Business and Economics  

ISSN: 2837-1909| Impact Factor: 6.72 

Volume. 10, Number 2; April-June, 2023;  

Published By: Scientific and Academic Development Institute (SADI)   

8933 Willis Ave Los Angeles, California  

https://sadipub.com/Journals/index.php/aijbe | editorial@sadipub.com 

 

1 
American Interdisciplinary Journal of Business and Economics | 

https://sadipub.com/Journals/index.php/aijbe 

 

IMPROVING THE AUDIT QUALITY OF NIGERIAN LISTED OIL AND 

GAS COMPANIES THROUGH INSTITUTIONAL SHAREHOLDING  
  
  

Sagir Lawal  
Nigeria police Academy Wudil Kano  

 

Abstract: This study examines the impact of institutional shareholding on the audit quality of listed oil and 

gas companies in Nigeria. The study utilizes secondary data from annual reports of ten oil and gas companies 

from the years 2010 to 2019, where institutional shareholding is measured as the proportion of institutional 

shareholding to non-institutional shareholding on the board and firm size is used to measure audit quality. The 

study found a significant positive relationship between institutional shareholding and audit quality of financial 

reports for listed oil and gas companies in Nigeria. The study concludes that higher institutional shareholding 

can enhance audit quality, and recommends an increase in institutional shareholding on the boards of oil and 

gas companies in Nigeria. The study contributes to the literature on institutional shareholding, audit quality, 

and agency theory, and is relevant for investors, creditors, and other stakeholders interested in assessing the 

profitability and decision-making of oil and gas companies in Nigeria.  

 

Keywords: institutional shareholding, audit quality, oil and gas companies, Nigeria, financial reports, firm 

size.  

  

  

1.0 INTRODUCTION   

The beginning of the pass 2 decade, is full of crisis in the capital markets, this affected large companies 

worldwide. Incidence among others, Enron, WorldCom, Xerox, Cadbury Nigerian plc, African Petroleum 

(now Forte Oil) PLC, and Unilever PLC. These scandals led to a loss of public confidence in the quality of 

published financial reports and the role of the audit function globally, many businesses closing down. 

Highquality external auditing is an integral component of working capital markets. Companies with a 

reputation for accurate financial reporting are likely to change auditors when their audit efficiency is called 

into question to mitigate the effects of poor financial reporting on the capital markets.   

An Independent audit is also regarded as a measure of corporate governance's external control effectiveness, 

which safeguards the interests of all the company's stakeholders by accrediting the financial statements, 

ensuring transparency and verifying the accuracy of financial information (Seyedeh, Hamid & Hashem 2016, 

David, Uche &Azah 2019, David & Ahmed 2020). Besides, investors, creditors and other stakeholders who 

assess the profitability of the different business units, and decisionmaking on the different investment 

opportunities, rely on the audit results of reputable independent audit firms.   

mailto:editorial@sadipub.com


Sagir Lawal (2023)   

 2 
American Interdisciplinary Journal of Business and Economics | 

https://sadipub.com/Journals/index.php/aijbe 

 

Thus, greater credibility of the auditor improves the interest, reliability, and acceptability of financial 

statements consumers and thereby decreases the expense of earnings and agency management (Ashbaugh, 

LaFond& Mayhew, 2003). The Executive Board plays an important role in corporate governance. Regardless 

of the division of corporate management and ownership, boards function to safeguard shareholder interests. 

The board's connection with the quality of the audit services performed may be formal or informal. In terms 

of formal relations, the board of directors usually cooperates with management in the selection of the external 

auditor, often subject to shareholder ratification (Adeyemi & Temitope, 2010.   

In response to the aforementioned corporate scandals, regulators from many countries around the world have 

embarked on new reforms to reinforce the auditor's independence and also restore public confidence in the 

quality of published financial reports. In the US for instance, the Sarbanes-Oxley Act was once surpassed in 

2002, which installed the Public Company Accounting Oversight Board (PCAOB) to oversee the monetary 

reporting procedure of public companies. Similar regulatory reforms aimed at bettering audit first-class and 

the great of annual economic statements produced through public companies were also carried out in the UK, 

Canada, Malaysia, South Africa, and Nigeria. However, despite these regulatory reforms to mitigate fraudulent 

monetary reports, improve audit exceptional and utilizing extension the fine of posted accounting reports, 

accounting scandals and corporate disasters involving especially professional external auditors are still 

regularly occurring globally. This has attracted the attention of accounting researchers who sought to set up a 

feasible purpose and impact connection between institutional shareholding and possession awareness on audit 

quality.   

Institutional shareholding and Director Shareholding have also been a central problem in the empirical 

discussions on the interplay between monitoring mechanism and audit quality. Perhaps, the predominant view 

is that institutions have the required resources and economic knowledge to reveal and self-discipline managers 

and thereby lowering company problems. This impact may also result in wonderful audit quality. On the 

different hand, discussions on the affiliation between Director Shareholding and audit great have also 

documented contradictory results. Two conflicting arguments appear to dominate these discussions. Some 

researchers believe that when owners pay good attention and concentrate fully on their investment it will 

drastically reduce mis appropriation and enhance audit quality because the value implication of their 

monitoring is less than the predicted gain from their big investments (Klein, 2002). On the contrary, Chen, 

Yen, and Chang. (2007) pointed out that audit quality is indeed weak and compromised when an auditor faces 

an agency of controlled shareholders    

Although, some huge amount of research exists on the relationship between company governance mechanisms 

and audit excellent (such as Abdullah 2008; Sulong, Gardner, Hussin, Sanusi & McGowan 2013; AlNawaiseh, 

2006, Qasim, (2011; Abolfazl, Amir, Noroozi Mohammad &Sahraneshinb, 2015), few centered on the effect 

of institutional shareholding and ownership awareness on audit quality. Whereas the few that exist are 

mentioned in the light of different countries, the outcomes are debatable in the Nigerian perspective given the 

dissimilarities like monitoring structures. Similarly, the outcomes that are got from samples drawn from 

several sectors of the economy to learn about phenomena spotlight the feasible implication of such phenomena 

on unique industries within the sample. Therefore, the decision to focal point on the quoted oil and fuel 

organizations in Nigeria. In Nigeria, the oil and gas sector are pivotal to economic progress for the reason that 

the bulk of the revenue is generated from this sector. It is anticipated that this quarter ought to acquire the most 

interest in phrases of monitoring and supervision given its economic importance. It is towards the backdrop 

that this finds out about empirically the effect of institutional shareholding and director shareholding on audit 

quality of listed oil and gas corporations in Nigeria. Therefore, the objective of this study is to observe the 



Sagir Lawal (2023)   

 3 
American Interdisciplinary Journal of Business and Economics | 

https://sadipub.com/Journals/index.php/aijbe 

 

impact of institutional shareholding and ownership attention on audit quality of listed oil and gas groups in 

Nigeria. To acquire this objective, it is hence hypothesized that:   

H01: Institutional shareholding has no widespread impact on audit high-quality of listed oil and gas companies 

in Nigeria    

2.0 LITERATURE REVIEW 2.1 Institutional Shareholding   

Institutional ownership refers to the stake in a company that is held by large financial organizations such as 

Banks, Investment companies and Insurance companies.   

Institutional Shareholders generally purchase large blocksof a company’s outstanding shares and can exert 

considerable influence upon its management. Jensen and Meckling (1976) claimed that Institutional 

Shareholding has a very extensive function in minimizing agency conflicts between managers and 

shareholders.   

 The existence of Institutional Shareholding is considered successful in being a highquality monitoring device 

in any choice taken through the manager. The agency concept suggests that monitoring via institutional 

possession can be a vital governance mechanism. Institutional buyers can provide energetic monitoring that 

is hard for smaller, more passive or less-informed investors (Almazan, Hartzell & Starks 2005, , David & 

Ahmed 2020). Moreover, institutional traders have the opportunity, resources, and capacity to reveal 

managers. Therefore, efficient monitoring suggests that institutional possession is related to better monitoring 

of management activities, lowering the capability of managers to opportunistically manipulate earnings. The 

environment-friendly monitoring assumption suggests an inverse relationship between a firm's revenue 

management recreation and its institutional share ownership. In this vein, numerous researches documented 

that institutional possession prevents managers to opportunistically interact in revenue management (Ebrahim, 

2007; Koh, 2003).   

Considering the significance of corporate governance in the firm's management, shareholder's lively 

participation in monitoring administration functions is important to ensure exact corporate governance 

practices. To date, institutional investors‟ participation has emerged as an important pressure include 

monitoring to serve as mechanisms to shield minority shareholder's interest. The significant extend in the 

institutional investors‟ shareholdings have led to the formation of a large and powerful constituency to play a 

large role in company governance. Earnings information, as part of accounting information, presents traders 

with relevant information that would help them in making correct asset pricing and funding choices (Yuan & 

Jaing, 2008).    

The active monitoring hypothesis views institutional investors as long-term buyers with raving incentives and 

motivations to closely display administration motion (Jung & Kown, 2002).    

However, some argue that institutional traders do now not play an energetic role in monitoring administration 

activities (Claessens & Fan, 2002; Porter, 1992). According to Duggal and Millar (1999), 'institutional buyers 

are passive buyers who are greater likely to promote their holdings in poorly performing companies than to 

use up their resources in monitoring and improving their performance'. Institutional traders may also be 

incapable of exerting their monitoring position and vote towards managers because it may also affect their 

enterprise relationships with the firm. Accordingly, institutional buyers can also collude with administration 

(Pound, 1988; Sundaramurthy, Rhoades & Rechner, 2005). It is also argued that institutional owners are overly 

centered on non-permanent monetary results, and as such, they are unable to screen management (Bushee, 

1998; Potter, 1992). So, there will be pressure on management to meet short-term profits expectations. These 



Sagir Lawal (2023)   

 4 
American Interdisciplinary Journal of Business and Economics | 

https://sadipub.com/Journals/index.php/aijbe 

 

arguments indicate that institutional investors may additionally now not restriction managers' revenue 

management discretion and can also increase managerial incentives to have interaction in salary management.   

2.2 Audit Quality    

International Auditing and Assurance Standards Board (IAASB, 2010) in its framework for audit quality 

mentioned that the purpose of an audit is to enhance the degree of confidence of intended users in the financial 

statements. This can be achieved through gathering sufficient appropriate audit evidence to express an opinion 

on whether the financial statements are prepared, in all material respects, under the applicable financial 

reporting framework. This indicates that IAASB linked between auditing quality and audit evidence that used 

to express an opinion about firms' financial statements according to financial reporting standards.    

Issa (2008) described audit satisfactory as the capability of audit technique to discover and file necessary 

falsification of financial statements as well as to minimize asymmetry of data between managers and 

stakeholders that are relevant to the degree of excellent of the data in monetary statements. Also, Deis and 

Giroux (2002) argued that auditing high-quality is the auditor's capability to become aware of weaknesses and 

gaps in the accounting machine for the client and the reporting. However, Copley and Doucet (2013) went in 

some other course by means of defining the auditing excellent as the utility of expert standards associated to 

fieldwork and reporting standards. The audit satisfactory is a set of techniques and methods that work to reduce 

mistakes and fraud, and it is supported thru get admission to to ample and convincing evidence to defend the 

pastimes of applicable parties (Abu, Ijela & Hamdan, 2010). The probability of detection is a count number 

of competence, whereas the likelihood of revelation depends on the independence of the auditor, i.e. his/her 

willingness to face the stress exerted via the producers of economic statements (Piot &Janin, 2005).   

There are many tries to define the notion of audit first-rate either on a professional business level, or academic 

level. On the expert enterprise level: for example, the International Federation of Accountants (IFAC, 2009: 

12) pointed to the idea of auditing first-class in the worldwide fashionable on quality control. It noted that "the 

goal of the audit association is to establish and hold a gadget of fantastic manage to furnish it with the practical 

assurance that: (a) The association and its personnel comply with professional requirements and relevant legal 

and regulatory requirements; and (b) Reports issued through the company or engagement companions are 

fabulous in the circumstances” (IFAC, 2009; 15). This capacity that the idea of fantastic from the viewpoint 

of (IFAC) lies in compliance with professional requirements and criminal and regulatory requirements.   

Furthermore, the Public Company Accounting Oversight Board (PCAOB, 2009) in auditing trendy no. 7 - 

engagement satisfactory assessment and conforming modification to the board's interim best manipulate 

requirements mentioned that: (1)the engagement team failed to acquire enough suitable evidence below the 

standards of the PCAOB; (2) the engagement group reached an inappropriate overall conclusion on the 

challenging matter of the engagement; (3) the engagement file is now not fantastic in the circumstances; or 

(4) the firm is not impartial of its consumer (PCAOB, 2009). Based on PCAOB factors, affecting the excellent 

of the wellperformed audit engagement, audit quality can be considered as a method of gathering adequate 

proof based on professional requirements to gain appropriate standard conclusions about the firm's 

conformance with applicable reporting standards.   

Moreover, the Supreme Audit Institutions of the European Union (2004) proposed the directions and practice 

about auditing quality, pointing out that the thought of auditing exceptional lies in the audit college attaining 

the following: excessive tiers of nice ineffectiveness of the planning and execution of auditing and different 

associated works, clear demonstration of audit reports, objectivity and fairness of the given estimates and 

opinions basis, the issuance of audit reviews at once to the needs of conceivable users, authenticity and 



Sagir Lawal (2023)   

 5 
American Interdisciplinary Journal of Business and Economics | 

https://sadipub.com/Journals/index.php/aijbe 

 

reliability of the views or results, and appropriateness of the pointers and other things blanketed in the audit 

reports (SAIs of European Union, 2004).  ICAEW (2002) suggested a definition for audit satisfaction by 

pointing out that, at its heart, audit best is about handing over a terrific expert opinion supported by the 

indispensable evidence and objective judgments. As lengthy as the auditors grant an impartial audit opinion 

that is supported by adequate audit evidence, the regulator assumes that such auditors have performed a 

firstclass auditing service.    

2.3 Empirical Review    

2.3.1 Institutional Shareholding and Audit Quality    

Zuriegat (2011) investigated the effect of possession shape and audit pleasant among Jordanian listed firms. 

Usings pattern dimension consisted of one hundred and ninetyeighty (198) businesses out of the two hundred 

and sixty-two (262) listed companies on the Amman Stock Exchange. The evaluation result using logistic 

regression in different to investigate the relationship between the audit characteristics measured primarily 

based on the audit company size as a dependent variable, and possession shape as unbiased variables. The 

outcomes exhibit a giant wonderful relationship between the audit first-class and that of the company's 

institutional possession and concluded that institutional traders tend to hire fantastic auditors. This study 

measured audit pleasant the use of firm dimension as the study proposes to, however, the used logit regression 

why this contemporary find out about will observe a couple of regression and there is the hassle of exterior 

validity since the previous find out about was carried out Amman Stock Exchange whilst the study will be on 

the Nigerian Stock change specifically in oil and gasoline sector.    

Khasharmeh and Joseph (2017) ascertain the impact of possession structure on audit high-quality in a growing 

country, the case of Bahrain. Specifically, the study regarded ownership awareness and Institutional 

Shareholding as person explanatory variables for possession structure. The annual reports of listed businesses 

in Bahrain for 2015 and unlisted businesses registered by using the Central financial institution of Bahrain in 

September 2016 have been used in the analysis. Logistic regression was used to check the hypotheses. The 

results indicated that Institutional Shareholding has a wonderful but insignificant impact on audit firm size. 

This learn about was achieved in every other economic system different from the Nigerian financial system 

so, a repetition of the usage of Nigerian statistics is imperative. Also, this modern-day learn about took a 

oneof-a-kind dimension, through interacting with the effect of a highquality audit committee, not just a direct 

relationship which makes for tons distinction between the studies.    

Alzeaideen and Al-Rawash (2018) investigated the effect of extraordinary ownership constructions - 

(concentration, foreign, and Institutional Shareholding) on audit nice of listed agencies in the Amman 

inventory exchange. To take a look at each hypothesis; a model used to be described based on dependent 

variables employed to measure audit quality. The sample study consists of 132 corporations from 2005 to 

2016. The evaluation of logistic regression was once used to inspect the relationship between the audit firstrate 

measured based totally on the audit firms’ size as a dependent variable and possession structure as independent 

variables. The outcomes supplied proof of an effective statistically giant relationship between the audit 

firstclass and that of agencies each with foreign and Institutional Shareholding. Also, these outcomes indicate 

that overseas and institutional investors tend to rent super auditors. This study affords a hassle or gap in 

exterior validity and did not reflect on consideration on the audit committee as a thing that may want to affect 

the relationship between institutional possession and audit quality.   

Akhidime (2015) examined the influence of the board structure of Nigeria banks on their audit quality. The 

find out about is based totally on the posted audited bills of 19 banks that have been chosen through an easy 



Sagir Lawal (2023)   

 6 
American Interdisciplinary Journal of Business and Economics | 

https://sadipub.com/Journals/index.php/aijbe 

 

random sampling technique from the populace of the 25 Nigerian banks over the banks' 

postconsolidation/reform over 5 years. The variables of the learn about had been analysed using binary logistic 

regression analysis. The hypotheses of the learn about had been examined using Fratios. From the outcomes 

of the pooled binary regression of the pooled facts at a 5% degree of significance. The outcomes of the find 

out about verify that non-executive administrator positively impact the banks' audit quality. This study is on 

Nigerian banks and used logit regression as a statistical technique for data evaluation whilst this cutting-edge 

find out about will be on oil and fuel organizations and will rent the use of multiple regression analysis as 

techniques for facts evaluation given us the problem of sectorial peculiarity and differences in statistical 

technique for analysis.   

Ibrahim and Jehu (2018) Using statistics on 576 Nigerian companies between 2011 and 2016 to look at the 

relationship between board composition and economic reporting quality, we underscored that the 

independence issue of board composition is twofold: director shareholding, and independent director 

shareholding. Our multivariate regression results recommend that the proportions of the director shareholding, 

as well as that of the impartial director shareholding, have a poor and tremendous relation with odd accruals, 

which in flip improves the great of financial reporting. But the coefficient of board dimension did now not 

exhibit any significance. This is consistent with the prognosis of the employer theory. This study, therefore, 

contributes to present know-how with the aid of expanding the independence of the board of directors into 

two variable measures and mainly detecting the significant components. The learn about is restrained to our 

proxy of FRQ (abnormal accruals) and did not reflect on consideration on the sensitivity of contemporaneous 

IFRS adoption within the period. The present-day find out about offers a wider scenario than this current find 

out about in that it considers several different monitoring attributes which makes the study greater sturdy than 

the preceding study.   

2.3.2 Measures of Audit Quality   

Although a number of studies have sought to measure “actual” audit quality, what has prevailed in the 

literature, considering that DeAngelo’s study (1981), are the metrics that try to capture “perceived” audit 

quality, such as: (i) the auditor’s size, specifically big-4, as in DeAngelo (1981), , David & Ahmed (2020), 

Ilaboya and Ohiokha (2013), Dang (2004), Gu, Lee and Rosett (2005), Behn, Choi and Kang (2008), 

Kanagaretnam, Krishnan and Lobo (2010), and Zagonov (2011); (ii) auditor specialization, as in Behn et al. 

(2008), Chambers and Payne (2008), Romanus, Maher and Fleming (2008) and Kanagaretnam, Krishnan et 

al. (2009, 2010); (iii) auditor issuing going subject opinion as in Teoh and Wong (1993) and Ghosh and Moon 

(2005); and (iv) accrual fashions as in Dang (2004) and Behn et al. (2008). For the reason of this study, audit 

firm measurement is used as a measure of audit quality.  

2.3.3 Agency Theory   

Agency theory connection is defined as a contract underneath which one or greater individuals (the principal) 

engage every other man or woman (the agent) to operate some provider on their behalf that entails delegating 

some decision-making authority. Jensen and Meckling (1976) truly describe the relationship between two 

parties: the owner as a principal and administration as an agent. The concept states that the separation of 

ownership from control of the modern commercial enterprise has become the relationship between the 

proprietors (shareholders) and controllers (managers) to that of an agent and a principal. As such the managers 

are supposed to treat this fiduciary link with the last sense of transparency and accountability. This capability 

that they are predicted to act in such a manner that benefits the shareholders as a substitute than pursuing their 

selfish interests. However, in practice, the existence of statistics asymmetry that gives the managers a piece of 



Sagir Lawal (2023)   

 7 
American Interdisciplinary Journal of Business and Economics | 

https://sadipub.com/Journals/index.php/aijbe 

 

privilege facts may additionally lead to the breach of the corporation association as the managers are tempted 

to use their positions for self-enhancement, subsequently the agency problem.    

Similarly, Fama and Jensen (1983) suggest that agency troubles that occur from the separation of ownership 

and control may want to be decreased if the residual claimants (shareholders) and the choice marketers 

(managers) in a firm are the same. This is because the interests of shareholders and managers are carefully 

aligned. Ownership structure involves a variety of each endogenous and exogenous company governance 

mechanisms that are put in place to mitigate this organization problem with the aid of tremendous monitoring 

of managers and hence minimize the employer cost. For instance, the inside governance mechanism presumed 

that, when the managers of a corporation also shape part of the fairness investors, it makes the managers act 

in the first-class hobby of the shareholders. While for external governance device, the existence of large 

shareholders is excellent for governance, because large shareholders play a more active role in monitoring and 

disciplining managers than small shareholders. In the identical vein, Institutional Shareholding is top for 

governance, for the reason that institutional investors have superior incentives and extra assets to selfdiscipline 

managers than small character investors.    

The enterprise issues concerning managers and investors may want to be lower in family firms. This is 

because, in family firms, the household usually owns a considerable element of the firm’s fairness and often 

continues to manipulate over the management. To Habib (2005), in an association with diffuse possession 

shape and low degree of managerial shareholding, the managers may try to present the working result of the 

association in the most beneficial manner possible to keep away from shareholder unrest or to lessen the 

probability of takeover attempts. In contrast, in a firm with more targeted ownership, the managers do not 

need income manipulation as a job-preserving strategy, due to the fact the owners possess manage of the firm.  

3.0 METHODOLOGY   

The research made use of the research method ex-post facto.  The research population comprises the ten (10) 

oil and gas companies listed as of 31 December 2019 on the Nigerian Stock Exchange (NSE).   

The wide number of companies was once limited to a working population of 9 (9). Afroil Plc used to be exempt 

from finding out about the population due to the fact that it had been deleted in 2008 and that no monetary 

results had been released for 20102019.The entire working population of nine (9) oil and gas organizations 

used to learn about the sample by thinking about the reality that the knowledge needed to find out about it is 

easy to find out from the published economic reports of the companies and the NSE factbook for the years in 

question.   

Two of the documents for this information were collected from a secondary source. Secondary information 

was derived from the published annual reviews and debts of the organizations and the NSE factbook for the 

years in force. The two methods to logistic regression have once been introduced. Logistic regression is a 

methodology for making predictions where the structured variable is a dichotomy and the unbiased variables 

are non-stop or discreet.   

Model Specification and Variables Measurement    

ADQ 01INSOP 2FS  t    

Where:    

ADQ = Audit Quality-    

INSOP=Institutional Shareholding FS= Firm Size μ = Error term    

Β1,  β2, β3 > 0 ……... = Coefficient  



Sagir Lawal (2023)   

 8 
American Interdisciplinary Journal of Business and Economics | 

https://sadipub.com/Journals/index.php/aijbe 

 

Table of Measurement of variables  S/N  Variable   Measurement   

1   Audit Quality(ADQ)   This is a binary variable 

with score 1 if the company is audited by a Big 4 audit 

firm and 0 otherwise;   

2   Institutional   

Shareholding   

(INSOP)   

This is measured by the proportion of Institutional 

Shareholding to non-Institutional Shareholding on 

the board.   

   

3   

   

Firm Size (FS)   
This is measured as the natural log of the firm’s total 

assets   

4.0 RESULTS AND DISCUSSION    

In this section of the study, results are presented and discussed in light of the research findings. First, a set of 

descriptive statistics are presented, then followed by the logistic regression results.  Table 1: Descriptive 

statistics   

Variable   Obs   Mean      Std. Dev.   Min   Max   

ADQ   120   .65   .4789695   0   1   

INSOP   120   .6100883       .0962562   .25   .7528   

FS   120   . .6777778   .4699457   0   1   

Source:  Stata output, 2020   

Table 1 shows that the sample oil and gas companies have employed the services of large global audit firms 

(big 4 as a measure of audit firm size) up to 68% of the total period of the study, from the mean of .6777778 

with standard deviation of .4699457, and the minimum and maximum value of 0 and 1 respectively. The 

standard deviation suggests that the data is narrowly dispersed from the mean because the standard deviation 

is lower compared to the mean.    

In addition, the Institutional Shareholding (INSOP) and Audit quality use as predictor variables. Table 1 further 

reveals that Institutional Shareholding has a mean of .6100883 with a standard deviation of .0962562. This 

implies that on average institutional investors accounted for 61% in the sampled oil and gas companies in 

Nigeria. Institutional Shareholding has a minimum value of .25 (25%) and a maximum value of .7528 (75%) 

respectively. the minimum value indicating that there was a particular firm in a certain year within the 

observations that have 25% institutional investors and 75% institutional investors respectively   

This means that on average of 65% of company composition explains the firms’ compliance with the SEC 

(2011, 2018) revised code of corporate governance best practice for which requires a higher proportion of 

director shareholding against their executive counterparts for efficient monitoring.   Table 2: Analysis of 

Logistic Regression    

   Coef.   

 

INSOW   -5.548265   3.372138   -1.65   0.100   

Std. Err.    z       P>|z|    



Sagir Lawal (2023)   

 9 
American Interdisciplinary Journal of Business and Economics | 

https://sadipub.com/Journals/index.php/aijbe 

 

F- chi2(3)     15.62            

Prob-F > chi2   0.0000            

Pseudo R2          0.4338            

 

Source: STATA Output, 2020   

The table presents the result of the logistic regression model. It shows that the model is capable of explaining 

10% variations in audit quality measured by audit firm size by the variation of an Institutional Shareholding 

and the control variables of firm size. The F-statistics and its probability show that the logistic regression 

equation is wellformulated explaining that the relationship between the explanatory variables’ combination, 

(that is an Institutional Shareholding) and audit quality reporting of Nigerian listed oil and firms are 

statistically significant (Fstat = 15.62; F-prob. = 0.0000).    

The hypothesis states that an Institutional Shareholding has no significant effect on audit quality of listed oil 

companies in Nigeria. The result of the logistic regression as presented in Table 2 shows that the Institutional 

Shareholding is positively (.6100883 and statistically significant at (0.000) 5%. This provides the study with 

evidence of rejecting the null hypothesis. This implies that an Institutional Shareholding has the likelihood of 

influencing audit quality of listed oil companies in Nigeria. The findings are compatible with Abdumalik 

(2015), David, Uche, and Azah (2019), David and Ahmed (2020) who also found a positive significant 

relationship between Institutional Shareholding and audit quality. The finding is contrary to the finding of 

Akhidime (2015) who found negative significant association independent and audit quality.   

The result of the second hypothesis states that indicates an inverse relationship between director shareholding 

and audit quality of listed oil marketing companies in Nigeria. From the result, in table 2 it can be seen that 

the coefficient of 2.625449 and significant level of 0.282. This means that director shareholding has the 

probability of influencing audit quality of listed oil company’s firms in Nigeria negatively. In the same vein, 

a unit change in the non-executive director decreases the audit quality of listed oil companies in Nigeria. This 

finding is consistent with Akhidime (2015) and Ibrahim and Jehu (2018) who also found a negative association 

between a nonexecutive director and audit quality. The finding contradicts the finding of Abdumalik (2015) 

who found a significant positive relationship between a non-executive director and audit quality.   

5.0 CONCLUSION AND RECOMMENDATIONS   

This study analyzed the influence Institutional Shareholding as important features of corporate governance on 

the quality audit reporting of oil and gas companies in Nigeria. Institutional Shareholding was measured using 

the proportion of the Institutional Shareholding to the non-Institutional Shareholding of the Board. The study 

concluded that the variables can be used to clarify the consistency of the audit   

However, on the basis of the individual explanatory variables, the study shows that the Institutional  

Shareholding is positively and substantially linked to the audit quality of the listed oil and gas companies in 

Nigeria. The study concluded that Institutional Shareholding had a clear effect on the audit quality of the listed 

oil and gas companies in Nigeria. This means that the higher the institutional shareholding, the higher the audit 

standard of the financial reports of the oil and gas companies in Nigeria.   

The higher proportions of Institutional Shareholding on Boards are expected to result in a more efficient 

oversight mechanism that will lead to more accurate financial statements of every company in the world.  

Institutional Shareholding is also a prerequisite for one of the most important duties of the Board of Directors, 

impartial supervision of management.   



Sagir Lawal (2023)   

 10 
American Interdisciplinary Journal of Business and Economics | 

https://sadipub.com/Journals/index.php/aijbe 

 

Therefore, on the basis of these statements and the findings as well as the conclusions drawn from this review, 

it is suggested that the boards of oil and gas companies in Nigeria should have a greater institutional 

shareholding, as this will boost the audit quality of their financial reports.  

REFERENCES    

Abdulmalik, S., Ahmad, A.C. & Aliyu, U.B. (2015), “Financial reporting quality: the role of  independent 

and grey directors, board continuous training and internal audit function”,    IPBJ, 7 (2), 40-57.    

Abdullah, W.Z.W. (2008), "The Impact of Board Composition, Ownership and CEO Duality on Audit Quality:  

The Malaysian Evidence", Malaysian Accounting Review, Vo.7, No.2, pp.17-28   

Abolfazl, G.M; Amir, Noroozi S., Mohammad, R., &Sahraneshinb, M. (2015)   

Adam, H., &Bala, R. (2015). Audit committee characteristics and earnings quality of listed food and  

beverages firms in Nigeria. International Journal of Accounting, Auditing and Taxation,  2(8), 216227.   

Al-Nawaiseh, M.I. (2006), "Factors Affecting Audit Quality: An Empirical Study from the Perspective of 

Jordanian Auditors", Jordan Journal of Business and Administration, vol.2, No.3, pp.390-415   

Akhidime, S. (2015) Board structure, corporate characteristics and audit quality of Nigerian banks.  

International Journal of Economics, Commerce and Management United  Kingdo m 3(6) 12-31.   

Berle, A., Means, G. (1932), The Modern Corporation and Private Property. New York: MacMillan.   

David, Uche &Azah (2019) Effect of Institutional shareholding and Ownership concentration on Audit quality 

of listed oil and gas companies in Nigeria. Journal of Accounting (JOA) vol.8 Issue 1pp 72.   

David M. C, Uche, J.W &Azah, S. (2020) Effect of Non-executive Directors and independent Directors on 

audit quality of listed oil and gas companies in Nigeria. Journal Forensic Accounting & Fraud 

Investigation (JFAFI)Vol.5, issue 1pp2659-1146   

David, M.C., Ahmed, M. M (2020) COVID-19 Pandemics and Economic Recession; implication for 

institutional shareholding and Allied matters. International journal of Sustainable Development, Vol.1 

No.7.   

DeAngelo, L. (1981), Auditor size and audit quality. Journal of Accounting and Economics, 3(3), 183-199.   

Demsetz, H. & K. Lehn. (1983). The Structure of Corporate Ownership: Causes and Consequences. Journal 

of Political Economy, 93, 1155–1177.   

Ibrahim & Jehu (2018).  Evaluating the Relationship between Ownership Structure as Corporate Governance 

Mechanism and Accounting Earnings Management Tools on the Financial  Performance. Journal of 

Emerging Trends in Economics and Management Sciences.  ANYR, Vol.9   



Sagir Lawal (2023)   

 11 
American Interdisciplinary Journal of Business and Economics | 

https://sadipub.com/Journals/index.php/aijbe 

 

Jensen, &Meckling, W. (1976). Theory of the firm: Managerial behaviour, agency costs and ownership 

structure. Journal of Financial Economics, 3,305–360.   

Klein, A. (2002): “Audit Committee, Board of Director Characteristics, and Earnings Management”, Journal 

of Accounting and Economics, 33, pp. 375-400.   

Morey, M., Gottesman, A., Baker, E., Godridge, B. (2008), Does better corporate governance result in higher 

valuations in emerging markets? Another examination using a new data set. Journal of Banking and 

Finance, 33, 254262.   

Qasim, M.Z., (2011). The Effect of Ownership Structure on Audit Quality: Evidence from Jordan. 

International Journal of Business and Social Science. Vol. 2 No. 1   

Sulong, Gardner, Hussin, Sanusi & McGowan (2013), “The association between internal  governance 

mechanisms and corporate value: evidence from   

Bahrain”, Asian Academy of Management Journal of Accounting and Finance, 8 (1), 67-92.   

Thomsen S., & T., Pedersen. (2000). Ownership Structure and Economic Performance in the largest European 

Companies. The Strategic Management Journal 21: 689-705.    

Titman, S., & Trueman, B. (1986). Information quality and the valuation of new issues. Journal of Accounting 

and Economics, 8(2), 159-172.   

Watts, R.L., Zimmerman, J.L. (1986), Positive Accounting Theory. Englewood CIFFS, NJ: Prentice-Hall, Inc.  


