Antecedents of audit quality in MENA countries

The effect of firm- and country-level governance quality

Research output: Contribution to journalArticle

Abstract

This paper investigates the effect of firm- and country-level governance quality on audit quality, as measured by (i) auditor choice and (ii) audit fees. Our findings are three-fold. First, our evidence suggests that board independence is positively related to engaging a Big 4 auditor, while family shareholdings show a negative association with hiring a Big 4 auditor. Second, board size, board independence, and director shareholdings are positively related to audit fees, while government shareholdings and family shareholdings show a negative relationship with audit fees. Third, higher country-level governance quality is positively associated with hiring a Big 4 auditor and paying higher audit fees. Overall, we provide evidence that external audit quality in Middle Eastern and North African (MENA) countries is affected by firm- and country-level governance quality, which suggests that governance quality and external audit quality seem to be complements in protecting stakeholders interests through securing higher audit quality. Our results are robust to controlling for alternative measures and endogeneities.
Original languageEnglish
Pages (from-to)85-107
Number of pages23
JournalJournal of International Accounting, Auditing and Taxation
Volume35
Early online date18 May 2019
DOIs
Publication statusPublished - Jun 2019

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Shareholding
Audit quality
Governance
African countries
Audit fees
Auditors
Big 4
Hiring
External audit
Board independence
Auditor choice
Quality audit
Endogeneity
Board size
Stakeholders
Government

Cite this

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title = "Antecedents of audit quality in MENA countries: The effect of firm- and country-level governance quality",
abstract = "This paper investigates the effect of firm- and country-level governance quality on audit quality, as measured by (i) auditor choice and (ii) audit fees. Our findings are three-fold. First, our evidence suggests that board independence is positively related to engaging a Big 4 auditor, while family shareholdings show a negative association with hiring a Big 4 auditor. Second, board size, board independence, and director shareholdings are positively related to audit fees, while government shareholdings and family shareholdings show a negative relationship with audit fees. Third, higher country-level governance quality is positively associated with hiring a Big 4 auditor and paying higher audit fees. Overall, we provide evidence that external audit quality in Middle Eastern and North African (MENA) countries is affected by firm- and country-level governance quality, which suggests that governance quality and external audit quality seem to be complements in protecting stakeholders interests through securing higher audit quality. Our results are robust to controlling for alternative measures and endogeneities.",
keywords = "Firm- and country-level governance quality, Audit quality, Auditor choice, Audit fees, MENA countries",
author = "Ahmed Sarhan and Collins Ntim and Basil Al-Najjar",
year = "2019",
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N2 - This paper investigates the effect of firm- and country-level governance quality on audit quality, as measured by (i) auditor choice and (ii) audit fees. Our findings are three-fold. First, our evidence suggests that board independence is positively related to engaging a Big 4 auditor, while family shareholdings show a negative association with hiring a Big 4 auditor. Second, board size, board independence, and director shareholdings are positively related to audit fees, while government shareholdings and family shareholdings show a negative relationship with audit fees. Third, higher country-level governance quality is positively associated with hiring a Big 4 auditor and paying higher audit fees. Overall, we provide evidence that external audit quality in Middle Eastern and North African (MENA) countries is affected by firm- and country-level governance quality, which suggests that governance quality and external audit quality seem to be complements in protecting stakeholders interests through securing higher audit quality. Our results are robust to controlling for alternative measures and endogeneities.

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