Does Stakeholders' Engagement Strengthen the Audit Quality–Financial Reporting Quality Nexus? Evidence from Listed Manufacturing Firms in Nigeria

The issues of lower financial reporting quality processes are especially high in Nigeria because economic decisions of investors are being faced with challenges, particularly in the emerging markets, where information asymmetry, regulatory inefficiencies, market volatility, and market failure are due to lower audit quality and inadequate stakeholders’ participation in the financial reporting processes. Therefore, this study investigates the moderating effect of stakeholders’ engagement on the relationship between audit quality and financial reporting quality of listed manufacturing companies in Nigeria from 2013 to 2024, while employing panel data from 47 listed manufacturing firms in Nigeria using fixed-effects regression analysis. The findings reveal that auditor independence exerts a significant negative effect on discretionary accruals (β = –0.069, p < 0.05), indicating improved financial reporting quality. Stakeholders’ engagement also shows a significant negative relationship with discretionary accruals (β = –0.088, p < 0.05). More importantly, the interaction terms (STEG × AIND: β = –0.278, p < 0.01; STEG × ACFE: β = –0.360, p < 0.05) are negative and statistically significant, confirming that higher levels of stakeholders’ engagement amplify the effectiveness of audit quality in constraining earnings management. All three null hypotheses are rejected. Stakeholders’ engagement strengthens the audit quality-financial reporting quality nexus significantly by reducing earnings management. Therefore, Nigeria-listed manufacturing firms should enhance auditor independence, strengthen audit committee expertise, and actively promote stakeholder engagement through better GRI-compliant disclosures and higher AGM attendance to improve reporting credibility.