Evaluating the Role of Auditors in Predicting Corporate Liquidation: Evidence from the Nigerian Banking Sector

Despite the critical role of auditors in assessing corporate viability, there is limited empirical evidence on how effectively audit opinions predict corporate liquidation within the Nigerian banking sector. This study investigates the role of auditors in predicting corporate liquidation, with a focus on the Nigerian banking sector. Using a dataset of 25 banks, the research examines how audit opinions and key financial ratios – Return on Assets (ROA), Capital Adequacy Ratio (CAR), and Liquidity, relate to the likelihood of liquidation. A logistic regression model reveals that adverse or qualified audit opinions are significantly associated with bank failure. Furthermore, poor financial health, as reflected in low ROA, CAR, and liquidity levels, significantly increases the probability of liquidation. The findings underscore the predictive importance of audit reports alongside financial indicators. The study recommends that regulators, investors, and banking executives treat audit opinions as critical early warning tools for corporate distress and insolvency. Enhancing the quality and timeliness of audit reports can significantly contribute to market discipline and financial stability in Nigeria’s banking industry.