A MODERATING EFFECT OF INFLATION ON THE IMPACT OF AUDIT QUALITY ON THE FINANCIAL RESILIENCE OF ZOMBIE FIRMS IN SUB-SAHARAN AFRICA

This study investigates how inflation moderates the link between audit quality and financial resilience in zombie firms in Sub-Saharan Africa, focusing on Nigeria’s manufacturing sector. The specific objectives were to evaluate how audit firm reputation (Big 4 affiliation) and audit fees influence financial resilience, measured by the Price-to-Earnings (P/E) ratio, and to examine whether inflation changes these effects. We used an ex post facto research design and panel data from 20 purposively sampled zombie firms, totalling 120 firm-year observations, listed on the Nigerian Exchange Group from 2015 to 2024. Data were analysed using descriptive statistics, correlation analysis, and panel regression models with interaction terms to assess moderation. Regression results showed non‑significant direct effects for both Big 4 affiliation (B = –30.038, p = 0.447) and audit fees (B = –8.224, p = 0.712) on the P/E ratio. This implies that traditional audit quality signals do not directly improve market valuations for zombie firms in Nigeria. However, interaction terms between audit quality indicators and inflation had positive coefficients. Also, the bivariate correlation between the audit‑fee–inflation interaction and the P/E ratio was significant (r = 0.180, p = 0.049), offering preliminary evidence for inflation’s moderating role. The overall model had limited explanatory power (R² = 0.078, Adjusted R² = 0.020), indicating that other factors mainly drive the financial resilience of zombie firms. The study concludes that the relationship between audit quality and financial resilience in zombie firms depends on context and is influenced by macroeconomic conditions. In high‑inflation environments like Nigeria, the relevance of audit investments may change, although this is not decisively confirmed by the full model. These findings challenge simple applications of agency theory in distressed firms and highlight the need for more nuanced governance frameworks that account for institutional and macroeconomic instability. Recommendations target corporate managers, auditors, regulators, and policymakers to improve governance and support the restructuring of zombie firms. The study suggests future research should use alternative resilience measures, advanced analytical techniques, and cross‑country comparisons.