Title: Customer Concentration and the Cost of Auditing: Do Auditors Factor in Supply-Chain Dependency? Evidence from Nigeria
Authors: Lawal T. Ibrahim
Aliyu Ochere Shafiyu
Abdulgafar Akilu
Volume: 10
Issue: 7
Pages: 159-173
Publication Date: 2026/07/28
Abstract:
This study examines the effect of customer concentration on audit fees among non-financial firms listed on the Nigerian Exchange Group (NGX). Customer concentration reflects the extent to which a firm's revenue depends on a small number of major customers. While prior studies offer conflicting predictions regarding whether customer concentration increases or reduces audit fees, evidence from emerging economies remains limited. Using firm-year observations covering the 2015-2024 period, this study estimates standard audit fee regression models to examine the relationship between customer concentration and audit pricing. The results reveal a significant negative association between customer concentration and audit fees, indicating that firms with more concentrated customer portfolios pay lower audit fees. The negative relationship is stronger for firms with higher customer switching costs and longer customer relationships, suggesting that stable customer ties improve information transparency and reduce perceived audit risk. The findings remain robust across alternative measures of customer concentration, propensity score matching, and instrumental variable estimation. Additional analyses indicate that the observed reduction in audit fees is attributable to audit efficiency rather than diminished audit quality, as firms with concentrated customer bases exhibit a lower likelihood of financial statement restatements. The study contributes to the literature on audit pricing and supply chain relationships by providing evidence from an emerging market and demonstrating that auditors incorporate customer concentration into pricing decisions through assessments of both engagement risk and audit efficiency. The findings offer practical implications for auditors, regulators, and corporate managers.