Corporate Governance Practices and Audit Quality: An Empirical Study of the Listed Companies in Egypt
Recent financial international scandals around the world have led to a number of investigations into the effectiveness of corporate governance practices and audit quality. Although evidence of corporate governance practices and audit quality exists from developed economies, very scanty studies have been conducted in Egypt where corporate governance is just evolving. Therefore, this study provides evidence on the effectiveness of corporate governance practices and audit quality from a developing country. The data for analysis are gathered from the top 50 most active companies in the Egyptian Stock Exchange, covering the three year period 2007-2009. Logistic regression was used in investigating the questions that were raised in the study. Findings from the study show that board independence; CEO duality and audit committees significantly have relationship with audit quality. The results also, indicate that institutional investor and managerial ownership have no significantly relationship with audit quality. Evidence also exist that size of the company; complexity and business leverage are important factors in audit quality for companies quoted on the Egypt Stock Exchange.
[1] Adeyemi, S. B, and Temitope O. F., "Audit Quality, Corporate
Governance and Firm Characteristics in Nigeria", International Journal
of Business and Management, Vol. 5, No. 5, P. 169- 179, 2010.
[2] Saudagaran, S. M., "The Accounting World Post-Enron, Tyco, Vivendi,
Worldcom, Xerox: Reflections on Being Part of the Solution",
Malaysian Accounting Review, Vol. 2, No.1, P. 2-12, 2003.
[3] DeAngelo, L.E., "Auditor size and audit quality", Journal of Accounting
and Economics, Vol. 3, No. 3, pp. 99-183, 1981.
[4] Becker, C., Defond, M., Jiambalvo, J., and K. Subramanyam, "The effect
of audit quality on earnings management", Contemporary accounting
research, Vol.15, pp.1-24, 1998.
[5] Piot, C., "Auditor Reputation and Model of Governance: A Comparison
of France, Germany and Canada", International Journal of Auditing,
Vol. 9, P. 21-44, 2005.
[6] Fan, J. P. H. and T. J. Wong, "Do External Auditors Perform a
Corporate Governance Role in Emerging Markets? Evidence from East
Asia", Journal of Accounting Research, Vol. 43, No. 1, P. 35-72, 2004.
[7] Ebaid, I. E.," Corporate governance practices and auditor-s client
acceptance decision: empirical evidence from Egypt", Corporate
Governance, Vol. 11, No. 2, P. 171-183, 2011.
[8] Sharma, D.S., Boo, E. and Sharma, V.D. ÔÇÿÔÇÿThe impact of non-mandatory
corporate governance on auditors- client acceptance, risk and planning
judgments--, Accounting and Business Research, Vol. 38 No. 2, p. 105-20, 2008.
[9] Craswell, A., J., Francis, and S., Taylor, "Auditor brand name
reputations and industry specializations", Journal of Accounting and
Economics, Vol. 20, No. 3, pp. 297-322, 1995.
[10] Sainty, B.J., Taylor, G.K. and Williams, D.D., "Investor dissatisfaction
toward auditors", Journal of Accounting, Auditing and Finance, Vol.17,
No.2, 2002.
[11] Kane, G. D., and. U. Velury, "The Role of Institutional Ownership in
the Market for Auditing Services: An Empirical Envestigation", Journal
of Business Research, Vol. 57, (September), pp. 976-983, 2004.
[12] Carcello, J.V., and Nagy. A.L., "Client size, auditor specialization and
fraudulent financial reporting", Managerial Auditing Journal, Vol.19,
No.5, 2004.
[13] Simunic, D.A. and Stein, M.T., "Product Differentiation in Auditing: Auditor Choice in the Market for Unseasoned New Issues", Canadian
Certified General Accountants- Research Foundation Monograph, 1987.
[14] DeZoort, F.T., Hermanson, D.R., Archambeault, D.S. and Reed, S.A.,
ÔÇÿÔÇÿAudit committee effectiveness: a synthesis of the empirical audit
committee literature--, Journal of Accounting Literature, Vol. 21, p. 38-
75, 2002.
[15] Anderson, R.C., Mansi, S.A. and Reeb, D.M., ÔÇÿÔÇÿAmerican Institute of
Certified Public Accountants AICPA professional standards, Statement
on Quality Control Standards, American Institute of Certified Public
Accountants, New York--, Journal of Accounting and Economics, Vol.
37 No. 2, p. 315-42, 2004.
[16] Klein, A., ÔÇÿÔÇÿAudit committee, board of directors characteristics, and
earnings management--, Journal of Accounting and Economics, Vol. 33
No. 2, p. 375-400, 2002.
[17] Blue Ribbon Committee, Report and recommendations of the Blue Ribbon Committee on improving the effectiveness of corporate audit committee, New York: NYSE and NASD, 1999.
[18] Public Oversight Board. Strengthening the professionalism of the
independent auditor. Stamford, CT: POB, 1994.
[19] O-Sullivan, N., "The impact of board composition and ownership on
audit quality: evidence from large UK companies", The British
Accounting Review, Vol. 32, No.4, P.397- 414, 2000.
[20] Salleh, Z., Stewart, J., & Manson, S., "The Impact of Board Composition
and Ethnicity on Audit Quality: Evidence from Malaysian Companies", Malaysian Accounting Review, Vol. 5, No. 2, P. 61-83, 2006.
[21] Yermack, D., "Higher Market Valuation of Companies with Small
Boards of Directors", Journal of Financial Economics, Vol.40, No. 2, P.
185-212, 1996.
[22] Pi, L., & Timme, S., "Corporate Control and Bank Efficiency", Journal
of Banking and Finance, Vol. 17, No.2, P. 515-530, 1993.
[23] Lin, Z. J., and M. Liu, "The Impact of Corporate Governance on Auditor
Choice: Evidence from China", Journal of International Accounting,
Auditing and Taxation, Vol. 18, No. 1, pp. 44-59, 2009.
[24] Mitra, S., Hossain, M., & Deis, D.R., "The empirical relationship between ownership characteristics and audit fees", Rev Quant Finance Acc, Vol. 28, P. 257-285, 2007.
[25] Chan, K. H., Lin. K. Z., and F. Zhang, “On the Association between
Changes in Corporate Ownership and Changes in Auditor Quality in a Transitional Economy”, Journal of International Accounting Research,
Vol. 6, No. 1, pp. 19-36, 2007.
[26] Niskanen, M., Karjalainen, J., and J. Niskanen, “Demand for Audit
Quality in Small Private Firms: Evidence on Ownership Effects”,
Available at: http://ssrn.com/abstract=1324599. 2009.
[27] Mahdavi, G., Mohammed, M., Fahime, E. & Mehdi, S. “The Impact of
Corporate Governance on Auditor Choice”, International Research
Journal of Finance and Economics, Vol. 68, P. 129-139. 2011.
[28] McMullen, D.A., ‘‘Audit committee performance: an investigation of
the consequences associated with audit committees’’, Auditing: A
Journal of Practice & Theory, Vol. 15 No. 1, pp. 1-28, 1996.
[29] Mitchell, V. Z., Singh, H.and Singh, I. “Association between
independent audit committee members’ human-resource features and
underpricing”, Journal of Human Resource Costing & Accounting. Vol.
12 No. 3, P. 179-212, 2008.
[30] Abd-Elsalam, O.H., & Weetman, P., “Introducing International
Accounting Standards to an Emerging Capital Market: Relative
Familiarity and Language effect in Egypt”, Journal of International
Accounting, Auditing & Taxation, Vol.12, p: 63-84, 2003.
[31] Zeitun, R. and Tian, G., "Does ownership affect a firm's performance
and default risk in Jordan?", Corporate Governance, Vol.7 No. 1, P. 66-
82, 2007.
[32] Beasley, M. S., “An empirical analysis of the relation between the board
of director composition and financial statement fraud”. Accounting
Review, Vol. 71, No.10, P. 443-465, 1996.
[33] Wan, Z.W.A., Shahnaz, I., & Nurasyikin, J., “The impact of board
composition, ownership and CEO duality on audit quality”. Malaysian
Accounting Review, Vol. 7, No. 2, P. 1-22, 2008.
[34] Tabachnick, B & Fidell, L., Using multivariate statistics, 3rd edition,
New York, Harper Collins, 1996.
[1] Adeyemi, S. B, and Temitope O. F., "Audit Quality, Corporate
Governance and Firm Characteristics in Nigeria", International Journal
of Business and Management, Vol. 5, No. 5, P. 169- 179, 2010.
[2] Saudagaran, S. M., "The Accounting World Post-Enron, Tyco, Vivendi,
Worldcom, Xerox: Reflections on Being Part of the Solution",
Malaysian Accounting Review, Vol. 2, No.1, P. 2-12, 2003.
[3] DeAngelo, L.E., "Auditor size and audit quality", Journal of Accounting
and Economics, Vol. 3, No. 3, pp. 99-183, 1981.
[4] Becker, C., Defond, M., Jiambalvo, J., and K. Subramanyam, "The effect
of audit quality on earnings management", Contemporary accounting
research, Vol.15, pp.1-24, 1998.
[5] Piot, C., "Auditor Reputation and Model of Governance: A Comparison
of France, Germany and Canada", International Journal of Auditing,
Vol. 9, P. 21-44, 2005.
[6] Fan, J. P. H. and T. J. Wong, "Do External Auditors Perform a
Corporate Governance Role in Emerging Markets? Evidence from East
Asia", Journal of Accounting Research, Vol. 43, No. 1, P. 35-72, 2004.
[7] Ebaid, I. E.," Corporate governance practices and auditor-s client
acceptance decision: empirical evidence from Egypt", Corporate
Governance, Vol. 11, No. 2, P. 171-183, 2011.
[8] Sharma, D.S., Boo, E. and Sharma, V.D. ÔÇÿÔÇÿThe impact of non-mandatory
corporate governance on auditors- client acceptance, risk and planning
judgments--, Accounting and Business Research, Vol. 38 No. 2, p. 105-20, 2008.
[9] Craswell, A., J., Francis, and S., Taylor, "Auditor brand name
reputations and industry specializations", Journal of Accounting and
Economics, Vol. 20, No. 3, pp. 297-322, 1995.
[10] Sainty, B.J., Taylor, G.K. and Williams, D.D., "Investor dissatisfaction
toward auditors", Journal of Accounting, Auditing and Finance, Vol.17,
No.2, 2002.
[11] Kane, G. D., and. U. Velury, "The Role of Institutional Ownership in
the Market for Auditing Services: An Empirical Envestigation", Journal
of Business Research, Vol. 57, (September), pp. 976-983, 2004.
[12] Carcello, J.V., and Nagy. A.L., "Client size, auditor specialization and
fraudulent financial reporting", Managerial Auditing Journal, Vol.19,
No.5, 2004.
[13] Simunic, D.A. and Stein, M.T., "Product Differentiation in Auditing: Auditor Choice in the Market for Unseasoned New Issues", Canadian
Certified General Accountants- Research Foundation Monograph, 1987.
[14] DeZoort, F.T., Hermanson, D.R., Archambeault, D.S. and Reed, S.A.,
ÔÇÿÔÇÿAudit committee effectiveness: a synthesis of the empirical audit
committee literature--, Journal of Accounting Literature, Vol. 21, p. 38-
75, 2002.
[15] Anderson, R.C., Mansi, S.A. and Reeb, D.M., ÔÇÿÔÇÿAmerican Institute of
Certified Public Accountants AICPA professional standards, Statement
on Quality Control Standards, American Institute of Certified Public
Accountants, New York--, Journal of Accounting and Economics, Vol.
37 No. 2, p. 315-42, 2004.
[16] Klein, A., ÔÇÿÔÇÿAudit committee, board of directors characteristics, and
earnings management--, Journal of Accounting and Economics, Vol. 33
No. 2, p. 375-400, 2002.
[17] Blue Ribbon Committee, Report and recommendations of the Blue Ribbon Committee on improving the effectiveness of corporate audit committee, New York: NYSE and NASD, 1999.
[18] Public Oversight Board. Strengthening the professionalism of the
independent auditor. Stamford, CT: POB, 1994.
[19] O-Sullivan, N., "The impact of board composition and ownership on
audit quality: evidence from large UK companies", The British
Accounting Review, Vol. 32, No.4, P.397- 414, 2000.
[20] Salleh, Z., Stewart, J., & Manson, S., "The Impact of Board Composition
and Ethnicity on Audit Quality: Evidence from Malaysian Companies", Malaysian Accounting Review, Vol. 5, No. 2, P. 61-83, 2006.
[21] Yermack, D., "Higher Market Valuation of Companies with Small
Boards of Directors", Journal of Financial Economics, Vol.40, No. 2, P.
185-212, 1996.
[22] Pi, L., & Timme, S., "Corporate Control and Bank Efficiency", Journal
of Banking and Finance, Vol. 17, No.2, P. 515-530, 1993.
[23] Lin, Z. J., and M. Liu, "The Impact of Corporate Governance on Auditor
Choice: Evidence from China", Journal of International Accounting,
Auditing and Taxation, Vol. 18, No. 1, pp. 44-59, 2009.
[24] Mitra, S., Hossain, M., & Deis, D.R., "The empirical relationship between ownership characteristics and audit fees", Rev Quant Finance Acc, Vol. 28, P. 257-285, 2007.
[25] Chan, K. H., Lin. K. Z., and F. Zhang, “On the Association between
Changes in Corporate Ownership and Changes in Auditor Quality in a Transitional Economy”, Journal of International Accounting Research,
Vol. 6, No. 1, pp. 19-36, 2007.
[26] Niskanen, M., Karjalainen, J., and J. Niskanen, “Demand for Audit
Quality in Small Private Firms: Evidence on Ownership Effects”,
Available at: http://ssrn.com/abstract=1324599. 2009.
[27] Mahdavi, G., Mohammed, M., Fahime, E. & Mehdi, S. “The Impact of
Corporate Governance on Auditor Choice”, International Research
Journal of Finance and Economics, Vol. 68, P. 129-139. 2011.
[28] McMullen, D.A., ‘‘Audit committee performance: an investigation of
the consequences associated with audit committees’’, Auditing: A
Journal of Practice & Theory, Vol. 15 No. 1, pp. 1-28, 1996.
[29] Mitchell, V. Z., Singh, H.and Singh, I. “Association between
independent audit committee members’ human-resource features and
underpricing”, Journal of Human Resource Costing & Accounting. Vol.
12 No. 3, P. 179-212, 2008.
[30] Abd-Elsalam, O.H., & Weetman, P., “Introducing International
Accounting Standards to an Emerging Capital Market: Relative
Familiarity and Language effect in Egypt”, Journal of International
Accounting, Auditing & Taxation, Vol.12, p: 63-84, 2003.
[31] Zeitun, R. and Tian, G., "Does ownership affect a firm's performance
and default risk in Jordan?", Corporate Governance, Vol.7 No. 1, P. 66-
82, 2007.
[32] Beasley, M. S., “An empirical analysis of the relation between the board
of director composition and financial statement fraud”. Accounting
Review, Vol. 71, No.10, P. 443-465, 1996.
[33] Wan, Z.W.A., Shahnaz, I., & Nurasyikin, J., “The impact of board
composition, ownership and CEO duality on audit quality”. Malaysian
Accounting Review, Vol. 7, No. 2, P. 1-22, 2008.
[34] Tabachnick, B & Fidell, L., Using multivariate statistics, 3rd edition,
New York, Harper Collins, 1996.
@article{"International Journal of Business, Human and Social Sciences:63378", author = "Mohamed Moustafa Soliman and Mohamed Abd Elsalam", title = "Corporate Governance Practices and Audit Quality: An Empirical Study of the Listed Companies in Egypt", abstract = "Recent financial international scandals around the world have led to a number of investigations into the effectiveness of corporate governance practices and audit quality. Although evidence of corporate governance practices and audit quality exists from developed economies, very scanty studies have been conducted in Egypt where corporate governance is just evolving. Therefore, this study provides evidence on the effectiveness of corporate governance practices and audit quality from a developing country. The data for analysis are gathered from the top 50 most active companies in the Egyptian Stock Exchange, covering the three year period 2007-2009. Logistic regression was used in investigating the questions that were raised in the study. Findings from the study show that board independence; CEO duality and audit committees significantly have relationship with audit quality. The results also, indicate that institutional investor and managerial ownership have no significantly relationship with audit quality. Evidence also exist that size of the company; complexity and business leverage are important factors in audit quality for companies quoted on the Egypt Stock Exchange.
", keywords = "Corporate governance, Boards of directors, corporate ownership, Audit Committees, Audit quality, and Egypt.", volume = "6", number = "11", pages = "3346-6", }
