AUDITOR INDEPENDENCE, BOARD CHARACTERISTICS AND FIRM PERFORMANCE
ABSTRACT
This study examined the relationship between auditor independence, board characteristics and form performance. The study made use of secondary data of thirty four companies obtained from the Nigerian stock exchange. The study found a positive relationship between firm size and firm performance. Also firm complexity and firm tangibility had a positive relationship with firm performance. Auditor independence, firm age and board size had negative relationship with firm performance. The study recommends that auditors independence should be guaranteed for optimal performance and also board size should be reduced as more members in a board could lead to conflict of interest and less quality decision made.
TABLE OF CONTENTS
CHAPTER ONE: INTRODUCTION
Background of the Study                
1.2    Statement of Research Problem            
1.3    Research Objectives                    
1.4    Research Hypothesis                    
1.5    Significance of the Study                
1.6    Scope of the Study                    
1.7    Limitations of the Study                
    Reference                                 
CHAPTER TWO: LITERATURE REVIEW
2.1     Introduction                            
2.2    Theoretical Relationship between Auditor         
Independence, Board Characteristics
and Firm Performance                     
2.3    Empirical Relationship between Auditor
Independence, Board Characteristics
and Firm Performance                    
References                             
CHAPTER THREE: RESEARCH METHODOLOGY
3.1     Introduction                            
3.2    Research Design                            
3.3    Data Source                         
3.4    Population                                 
3.5    The Sample and Sampling Technique            
3.6    Data Analysis                            
3.7    Regression Analysis                    
3.8    Multiple Regression Analysis            
3.9    Model Specification                         
    References                                 
CHAPTER FOUR: DATA PRESENTATION AND ANALYSIS
4.1    Introduction                         
4.2    Presentation of Empirical Results            
4.3    Test of Hypothesis                     
CHAPTER FIVE: SUMMARY, RECOMMENDATION AND CONCLUSION
5.1    Introduction                             
5.2    Summary of Findings                    
5.3    Recommendations                    
5.4    Conclusion                         
Bibliography                        
Appendix                             
CHAPTER ONE
1.1    INTRODUCTION
    The structure and size of corporate boards have received much attention in the media and in the business community recently, fuelled by the prominent business failure of large companies such as Enro, Worldcom and parmalat. The general view that board characteristics matter is reflected by an abundance of national and international guidelines for good corporate governance. A survey of the codes of conduct reveals that without exemption, a substantial amount of space is devoted to the specific organization of the corporate board.
    Today, corporate governance has by no doubt played an important role in corporate success. Researcher have shown that corporate governance is one of the key elements in improving the performance of the companies, which oversee the relationship between shareholders, board of directors, managers and other stakeholders (Fame and Jensen, 2008). Several authors (e.g, Johnson et al) presents evidence indicating that corporate governance is of first-order importance in determining firm performance during crises, the quality of corporate governance is likely to attract more scrutiny. Thus any preexisting weaknesses are more viable, thereby leading to a flight to quality and an ensuring decline in firm’s stock prices. The board is the most important and fundamental mechanism in corporate governance. The composition of the board plays a vital role in increasing controlling performance, as an important operative in explaining the capabilities of members in completing duties and helping cooperative performance. Then the question arises characteristics when we can achieve the verification of management working in good faith.
    The reason is that audit has failed in the realization of the avowed objectives of verifying the operations carried out by management. One of the major reasons for the failure of audit effectiveness is the absence of audit independence and this factor alone has paved the way for corporate governance.
    Auditors independent in recent years have become a topical issue following the failure of Enron and other corporate scandals like Worldcom and parmalat (Raga Tun Uda, 2002). These financial scandals and corporate failures are proven to have had a detrimental effect on the public’s perception of auditors. According to O’ Malley (1993), the issues related to independence are threatening the survival of accounting firms of all sizes and indeed the power to destroy the accounting profession as a whole. Auditor independence, implies “the absence of influence or control in the matter of the auditor’s conduct, action and opinion” (AAA, 1973). It simply refers to the auditor’s ability to express his conclusion honestly and impartially. It is therefore, vital that auditors maintain their independence and ensure that they provide in  high quality of auditing to ensure creditability of financial information not only for the purpose of reducing the number of corporate scandals but most importantly the survival of their profession and the development of a healthy financial and capital market (Abubakar, 2006).
1.2    STATEMENT OF RESEARCH PROBLEM
    The structure, size of corporate boards and auditors independence have received much attention in the media and in the business community recently, fuelled by prominent business failures of large companies such as Enron, Worldcom and parmalat. It is thus necessary to take a cursory look at this issues and how they affect a firms performance and survival.
    In the light of this, the following problems will be addressed.
What is the relationship between auditor independence and firm performance?
What is  the relationship between board size and firm performance?
What is the relationship between firm size and firm performance?
1.3    RESEARCH OBJECTIVES
To examine the relationship between auditor independence and firm performance.
To ascertain the relationship between board size and firm performance.
To find out the relationship between firm size and firm performance.
1.4    RESEARCH HYPOTHESIS
    In carrying out this study, the following hypothesis will be tested.
Ho:    There is a positive relationship between auditor
    independence and firm performance.
Hi:    There is a negative relationship between auditor independence and firm performance.
Ho:    There is a positive relationship between board size
and firm performance.
Hi:    There is a negative relationship between board
    size and firm performance.
Ho:    There is a positive relationship between firm size
and firm performance.
Hi:    There is a negative relationship between firm size
and firm performance.
1.5    SIGNIFICANCE OF THE STUDY
    This research work on its conclusion together with whatever solutions or findings will provide answers to some pertinent questions as regards effect of auditors independence and board characteristics on firm performance as well as proffer solutions to some existing challenges currently faced in this area. Its significance is all encompassing in the sense that every stakeholder in the sector under review will have access to good information so as to aid him or her in making decision.
    Some of these stakeholders includes, shareholders, directors of firms, public government, students of accounting. Also prospecting researchers have access to work as regards this sector, and can build upon this study, identifying areas untouched and conduct further research on them.
1.6    SCOPE OF THE STUDY
    This study focuses on auditors independence, board characteristics and firm performance in Nigeria’s manufacturing sector. The time frame for this study is for a period of five years (2006-2010). Geographically, this study is limited to Nigerian manufacturing companies quoted on the Nigerian Stock Exchange.
1.7    LIMITATIONS OF THE STUDY
    problems encountered in this study were the use of secondary data in the research problems that arose include no assurance and reliability etc.
 REFERENCES
Abu Bakar, N.B. (2006). Threats to auditor independence. The
Accountants: Journal of the Malaysian institute of certified public Accountant (December issue), 3-5.
Elsenberg, G.U. (1998). Larger board size and decreasing firm value in small firms, Journal of financial economics. 48, 35-54.
Fama, E. and Jensen, M.C. (1983). Separation of ownership and control, Journal of Law and Economics, 26, 301-326.
Jensen, M.C. (1993). The modern industrial revolution, exist, and failure of internal  control systems, Journal of finance, 48, 59-77.
Raja Tun Arshad Raja Tun Uda (2002). Auditor independence, the Edge, 11 November, 12-13.
Yermack, D. (1996). Higher market valuation of companies with a small board of directors, Journal of Financial Economics, 40, 185-221.