The moderating impact of institutional shareholders on the relationship between audit quality and firm value
Vol 8, Issue 3, 2024
VIEWS - 621 (Abstract) 432 (PDF)
Abstract
This research attempts to investigate the effect of audit quality on firm value in the high corporate governance context. In addition, this study seeks to examine the role of institutional shareholders as a moderating variable on the relationship between audit quality and firm value. Dataset includes the 95 (out of 575) Thai listed companies which fully and completely implement the Corporate Governance Code (CG Code) voluntary disclosure recommended by OECD (Organisation for Economic Co-operation and Development) in 2021. Multiple linear regression and Hayes’s regression-based analysis are done using market capitalization as the dependent variable. The research results illustrate that audit quality relates to firm value in a negative way, while profitability and institutional shareholders relate to firm value in a positive manner. Moreover, the interaction effect between audit quality and institutional shareholders wields a significant negative impact on the association between audit quality and firm value, which indicates that the negative effect of audit quality on firm value is stronger when more firm shares are owned by institutional shareholders. The results of this study would potentially be very useful to managers, financial advisors, and policymakers to observe the nature and vagaries of audit quality in high corporate governance environment, especially when institutional shareholders hold a significant proportion of firm shares. The study offers practical suggestions and recommendations for audit quality and institutional shareholders, which are essential for overall operating efficiency and firm value. The outcomes can help improve corporate governance practices, which in turn enhance the share price and profits.
Keywords
Full Text:
PDFReferences
Afifa, M. A., Saleh, I., Haniah, F. (2021). Direct and Mediated Associations Among Ownership Structure, Cash Holdings and Firm Value: The Case of Jordanian Insurance Firms. Vision: The Journal of Business Perspective, 25(4), 471–482. https://doi.org/10.1177/0972262920983989
Abu Afifa, M. M., Saleh, I. H., Haniah, F. F. (2021). Does earnings management mediate the relationship between audit quality and company performance? Evidence from Jordan. Journal of Financial Reporting and Accounting, 21(3), 747–774. https://doi.org/10.1108/jfra-08-2021-0245
Abu Afifa, M. M., Saleh, I., Taqatqah, F. (2023). Mediating influence of earnings management in the nexus between audit quality and company value: new proof from Jordanian market. Accounting Research Journal, 36(2/3), 148–165. https://doi.org/10.1108/arj-03-2021-0102
Abu Afifa, M., Hamad Saleh, I. (2023). Does Audit Quality Affect Companies’ Performance?. Ekonomski Pregled, 74(2), 208–232. https://doi.org/10.32910/ep.74.2.2
Abu Afifa, M., Alsufy, F., Abdallah, A. (2020). Direct and Mediated Associations among Audit Quality, Earnings Quality, and Share Price: The Case of Jordan. International Journal of Economics and Business Administration, 8(3), 500–516. https://doi.org/10.35808/ijeba/540
Afza, T., Sajid Nazir, M. (2014). Audit Quality and Firm Value: A Case of Pakistan. Research Journal of Applied Sciences, Engineering and Technology, 7(9), 1803–1810. https://doi.org/10.19026/rjaset.7.465
Al-Afeef, M. (2020). Factors Affecting Market Capitalization: A Practical Study ASE 1978–2019. International Journal of Science and Technology Research, 9(3), 7049-7053.
Al-ahdal, W. M., Hashim, H. A. (2021). Impact of audit committee characteristics and external audit quality on firm performance: evidence from India. Corporate Governance: The International Journal of Business in Society, 22(2), 424–445. https://doi.org/10.1108/cg-09-2020-0420
Aledwan, B. A., Yaseen, A. A. B., Alkubisi, A. (2015). The Role of Audit Quality on the Relationship between Auditor’s and Financial Performance Quality of Selected Cement Firm in Jordan. International Journal of Business and Social Science, 6(12), 138-146.
Alfraih, M. M. (2016). The role of audit quality in firm valuation. International Journal of Law and Management, 58(5), 575–598. https://doi.org/10.1108/ijlma-09-2015-0049
Ben Ali, C., Lesage, C. (2013). Audit pricing and nature of controlling shareholders: Evidence from France. China Journal of Accounting Research, 6(1), 21–34. https://doi.org/10.1016/j.cjar.2012.08.002
Almarayeh, T. S., Aibar-Guzman, B., Abdullatif, M. (2020). Does audit quality influence earnings management in emerging markets? Evidence from Jordan. Revista de Contabilidad, 23(1), 64–74. https://doi.org/10.6018/rcsar.365091
Alshubiri, F. (2021). The stock market capitalisation and financial growth nexus: an empirical study of western European countries. Future Business Journal, 7(1). https://doi.org/10.1186/s43093-021-00092-7
Bakri, M. A. (2021). Moderating effect of audit quality: The case of dividend and firm value in Malaysian firms. Cogent Business & Management, 8(1). https://doi.org/10.1080/23311975.2021.2004807
Bryman, A., Cramer, D. (1997). Quantitative data analysis with SPSS for windows. London: Routledge.
Chen, J., Dong, W., Li, S., et al. (2016). Perceived audit quality, state ownership, and stock price delay: evidence from China. Asia-Pacific Journal of Accounting & Economics, 25(1–2), 253–275. https://doi.org/10.1080/16081625.2016.1208573
De La Cruz, M. A., Tang, Y. (2019). Owners of the World’s Listed Companies. OECD Capital Market Series, Paris. Available online: http://www.oecd.org/corporate/Owners-of-the-Worlds-Listed-Companies.htm (accessed on XX).
DeAngelo, L. E. (1981). Auditor size and audit quality. Journal of Accounting and Economics, 3(3), 183–199. https://doi.org/10.1016/0165-4101(81)90002-1
DeFond, M., Zhang, J. (2014). A review of archival auditing research. Journal of Accounting and Economics, 58(2–3), 275–326. https://doi.org/10.1016/j.jacceco.2014.09.002
Elewa, M. M., El-Haddad, R. (2019). The Effect of Audit Quality on Firm Performance: A Panel Data Approach. International Journal of Accounting and Financial Reporting, 9(1), 229. https://doi.org/10.5296/ijafr.v9i1.14163
Farooq, U., Tabash, M. I., Anagreh, S., Khudoykulov, K. (2022). How do market capitalization and intellectual capital determine industrial investment? Borsa Istanbul Review, 22(4), 828–837. https://doi.org/10.1016/j.bir.2022.05.002
Farouk, M. A., Hassan, S. U. (2014). Impact of audit quality and financial performance of quoted cement firms in Nigeria. International Journal of Accounting and Taxation, 2(2), 1–22.
Graham, J., Smart, S. B., Megginson, W. L. (2010). Corporate Finance: Linking theory to what companies do. (3rd ed). Mason, OH: South-Western Cengage Learning.
Gunn, J. L., Kawada, B. S., Michas, P. N. (2019). Audit market concentration, audit fees, and audit quality: A cross-country analysis of complex audit clients. Journal of Accounting and Public Policy, 38(6), 106693. https://doi.org/10.1016/j.jaccpubpol.2019.106693
Hair, J. F., Hult, G. T. M., Ringle, C. M., et al. (2019). Manual de Partial Least Squares Structural Equation Modeling (PLS-SEM) (2nd ed). OmniaScience. https://doi.org/10.3926/oss.37
Iliemena, R., Okolocha, C. B. (2019). Effect of audit quality on financial performance; Evidence from a developing capital market. International Journal of Recent Research in Commerce Economics and Management, 6(3), 191–198.
International Federation of Accountants (IFAC) (2017). ISA 200, Overall Objective of the Independent Auditor, and the Conduct of an Audit in Accordance with International Standards on Auditing. International Auditing and Assurance Standards Board, April 2007, Available online: https://www.ifac.org/_flysystem/azure-private/meetings/files/3393.pdf (accessed on 15 June 2023).
Ivungu, J. A., Anande, K. G., Ogirah, A. U. (2019). Effect of Audit Quality on Firm Performance: A Review of Literature. International Journal of Advanced Academic Research, 5(6), 1–13.
Jebb, A. T., Ng, V., Tay, L. (2021). A Review of Key Likert Scale Development Advances: 1995–2019. Frontiers in Psychology, 12. https://doi.org/10.3389/fpsyg.2021.637547
Jensen, M. C., Meckling, W. H. (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 3(4), 305–360. https://doi.org/10.1016/0304-405x(76)90026-x
Khosrokhah, M., Salari, H., Amiri, A. (2018). Institutional Ownership Structure; Mediator Role in Related Party Transactions and Corporate Profit Management. Academic Journal of Accounting and Economic Researches, 7(2), 18–24.
Khrawish, H. A., Siam, W. Z., Jaradat, M. (2010). The relationships between stock market capitalization rate and interest rate: Evidence from Jordan. Business and Economic Horizons, 2, 60–66. https://doi.org/10.15208/beh.2010.17.
Knechel, W. R., Krishnan, G. V., Pevzner, M., et al. (2012). Audit Quality: Insights from the Academic Literature. Auditing: A Journal of Practice & Theory, 32(Supplement 1), 385–421. https://doi.org/10.2308/ajpt-50350
Kraft, M. E., Furlong, S. R. (2007). Public Policy: politics, analysis, and alternatives, 2nd ed. London: CQ Press.
Kuo, N. T., Li, S., Du, Y. G., et al. (2022). Does individual auditor quality contribute to firm value? Evidence from the market valuation on corporate cash holdings. International Review of Economics & Finance, 79, 135–153. https://doi.org/10.1016/j.iref.2022.02.001
Li, Z., Wang, B. (2022). The influence of foreign institutional investors on audit fees: evidence from Chinese listed firms. Accounting Forum, 1–28. https://doi.org/10.1080/01559982.2022.2071183
Limperg, T., Flint, D., Bak, G. G. M. (1985). The Social Responsibility of the Auditor: A Basic Theory on the Auditor’s Function. Limperg Institute.
Lin, Y. R., Fu, X. M. (2017). Does institutional ownership influence firm performance? Evidence from China. International Review of Economics & Finance, 49, 17–57. https://doi.org/10.1016/j.iref.2017.01.021
Neter, J, Wasserman, W., Kutner, M. H. (1989). Applied linear regression models (2nd ed.) Homewood, III: Richard D. Irwin.
Kutha, N. M., & Susan, M. (2021). Institutional Ownership, External Auditor Reputation, Financial Leverage, and Earnings Management. Journal of Economics and Business, 4(1). https://doi.org/10.31014/aior.1992.04.01.323
Pavone, P. (2019). Market Capitalization and Financial Variables: Evidence from Italian Listed Companies. International Journal of Academic Research in Business and Social Sciences, 9(3). https://doi.org/10.6007/ijarbss/v9-i3/5802
Phan, T. T. H., Lai, L. A., Le, T. T., et al. (2020). The impact of audit quality on performance of enterprises listed on Hanoi Stock Exchange. Management Science Letters, 217–224. https://doi.org/10.5267/j.msl.2019.8.001
Saengchote, K., Sthienchoak, J. (2021). The Role of Institutional Investors in Thai REITs. Chulalongkorn Business Review, 43(1), 38–58.
Salehi, M., Zimon, G., Hashim, H. A., et al. (2022). Accounting Quality and Audit Attributes on the Stock Price Crashes in an Emerging Market. Risks, 10(10), 195. https://doi.org/10.3390/risks10100195
Scott, W. R. (2004). Institutional theory. In: Ritzer G. (editor). Encyclopedia of Social Theory. Thousand Oaks, CA: Sage.
Sim, C. H., Hla, D. T., Md.Isa, A. H. (2016). Practicing FRS and Audit Quality Support Financial Success of Construction Firms in Malaysia. Unimas Review of Accounting and Finance, 1(1). https://doi.org/10.33736/uraf.290.2016
Securities Exchange Commissions (SEC). (2017). Corporate Governance Code for listed companies 2017. Available online: https://www.sec.or.th/TH/Documents/CompanyHandbooksandGuidelines/CGcode2560_th.pdf (accessed on 12 June 2022).
Stock Exchange of Thailand (SET). (2023). STARK News. Available online: https://www.set.or.th/th/market/product/stock/quote/STARK/news (accessed on 31 July 2023).
Tihanyi, L., Devinney, T. M., & Pedersen, T. (2012). Introduction to Part II: Institutional Theory in International Business and Management. Advances in International Management, 33–42. https://doi.org/10.1108/s1571-5027(2012)0000025009
Vernimmen, P., Quiry, P., Fur, Y. L. (2022). Corporate Finance: Theory and Practices (6th ed.). John Wiley & Sons.
Wallace, W. (1980). The economic role of the auditor in free and regulated markets: A review. Research in Accounting Regulation, Open education Resources.
Ye, X. (2020). Literature Review on Influencing Factors of Audit Fees. Modern Economy, 11(02), 249–260. https://doi.org/10.4236/me.2020.112022
Yolandita, A. A., Cahyonowati, N. (2022). The effects of audit quality on firm value Indonesian financial service sectors. Diponegoro Journal of Accounting, 11(1), 1–8.
Zahid, R. M. A., Khan, M. K., Anwar, W., & Maqsood, U. S. (2022). The role of audit quality in the ESG-corporate financial performance nexus: Empirical evidence from Western European companies. Borsa Istanbul Review, 22, S200–S212. https://doi.org/10.1016/j.bir.2022.08.011
DOI: https://doi.org/10.24294/jipd.v8i3.3428
Refbacks
- There are currently no refbacks.
Copyright (c) 2024 Walaiporn Nuansa-ard, Wachira Boonyanet, Supa Tongkong
License URL: https://creativecommons.org/licenses/by/4.0/
This site is licensed under a Creative Commons Attribution 4.0 International License.