From Information Asymmetry to Agency Costs: Preliminary Evidence on Internal Audit, Board Independence and Managerial Accountability in Nigerian Financial Institutions

The study extends Agency Theory by separating the formation of agency problems from the governance mechanisms intended to constrain them. It examines an agency-problem pathway from information asymmetry to principal-agent conflict and then to agency costs.

It also examines a governance-accountability pathway involving board independence, internal audit effectiveness and managerial accountability within a Nigerian financial-services context.

A cross-sectional survey produced 33 complete responses from professionals with experience relevant to internal audit, governance, control, finance, risk and management. Twenty-three respondents reported currently working in Nigerian financial institutions.

The exploratory analysis used correlation, ordinary least-squares regression, non-parametric bootstrapping, moderation analysis and sensitivity tests. The design emphasizes effect sizes, uncertainty and robustness rather than definitive causal claims.

Information asymmetry was strongly and positively associated with principal-agent conflict, while principal-agent conflict was positively associated with agency costs. Bootstrap analysis also provided preliminary evidence of an indirect association between information asymmetry and agency costs through principal-agent conflict.

Board independence emerged as an important part of the governance environment: it was positively associated with internal audit effectiveness and strongly associated with managerial accountability. Internal audit effectiveness was positively associated with managerial accountability in the conventional bivariate model, although that result was less robust under alternative analyses.

The results suggest that agency-problem formation and governance response should be treated as related but analytically distinct processes. Internal audit contributes to the governance response, but it does not operate independently of the wider institutional architecture.

For boards and audit committees, the practical implication is that internal audit effectiveness should be supported by substantive board independence, direct access, credible challenge and clear accountability for corrective action.

The study is preliminary. Its small non-probability sample, cross-sectional design, single-source measurement and limited capacity for measurement-model validation constrain generalisation and causal interpretation.

The findings should therefore be read as a basis for future confirmatory research using a larger independent sample, stronger occupational balance, longitudinal evidence and additional objective governance indicators.