Abstract
The association between managerial ability and audit pricing is limited and mixed in the literature. The mixed results may be due to the non-consideration of the plausibility of a mediating variable influencing the association. Therefore, this study, conducted in the context of the Nigerian banking industry, assesses the mediating role of audit firm industry specialisation on the association between managerial ability and audit pricing. Managerial ability is proxied using the Data Envelopment Analysis (DEA)-Tobit regression model, audit firm industry specialisation is proxied using an indicator variable that is equal to one if the audit firm has at least a market share of 30 percent, while audit pricing is proxied using audit fees. Secondary data obtained from the audited annual financial statements of 11 listed deposit money banks (commercial banks) between 2011 and 2022 are used for this study. The Dippel et al. (2020) causal mediation analysis framework in an instrumental-variable regression model is adopted to empirically achieve the study's objective. The findings show that audit firm industry specialisation mediated the association between managerial ability and audit pricing in the Nigerian banking industry. Our findings have implications for bank management, audit firms, and regulatory agencies.