Board of director's effectiveness, audit quality and ownership structure: impact on audit risk-Tunisian evidence

Abstract

PurposeThe purpose of this paper is to investigate the potential influence of internal and external corporate governance mechanisms on audit risk in Tunisian companies.Design/methodology/approachBased on a sample of Tunisian non-financial firms listed on the Tunisian Stock Exchange (TSE) over the periods 2005 to 2010 (pre- 2011 revolution) and 2011 to 2017 (post −2011 revolution), consisting of 371 observations for the whole period, the authors apply the generalized least square (GLS) to test the research hypotheses and model.FindingsThe results are consistent with the agency theory suggesting that efficient corporate governance is able to control and reduce a company’s agency problem. Evidence reveals that the effectiveness of the director’s board/ownership structure and audit quality have the most influence on audit risk before than after the 2011 revolution, although governance mechanisms should play a more active role in encouraging companies to be more transparent in the post-revolution period. Moreover these findings are confirmed when identifying a composite measure of corporate governance.Practical implicationsSignificant implications are provided for analysts, investors, regulators and academics. First, findings can help Tunisian regulators determine corporate governance disclosure requirements. Second, this research will make investors and stakeholders aware of the fact that minimizing auditor risk will be effective in reducing agency problems in emerging markets like Tunisia. Then, this work can help researchers better understand and realize the corporate governance role in the quality of audit process and financial statements and encourage them to deeply and broadly investigate this issue on other emerging markets.Originality/valueThis study stands for an extension of the existing research on corporate governance and audit risk. It fills a research gap in the local context. In fact, the considered data are those of the pre- and post-revolution Tunisian market, mainly in periods of instability. Although emerging markets make up the vast majority of economic activity around the world, they have received limited attention in academic research.

Performance and CEO duality in Indian public banks: a moderating role of board independence

“…The separation of the CEO and the chairman of the board, as well as a high degree of BIND, are the central tenets of agency theory (Jensen and Meckling, 1976), which leads to safeguarding the interest of shareholders, enhances the trust and confidence level of the investor and restricts the opportunist behaviour of managers (Al-Gamrh et al, 2020;Carty and Weiss, 2012;Fakhfakh and Jarboui, 2022;Haddad, 2022;Wijethilake and Ekanayake, 2020). The presence of outside directors also bridges the information asymmetry gap between both parties by asking the "right questions" from the internal directors (Hamrouni et al, 2021;Monks and Minow, 2008).…”

Military directors and audit fees

“…So, for example, if the auditor sees that a company has too many audit risks, they will need to perform more lengthy audit procedures and ask for a higher audit fee (Hay et al ., 2006). In assessing client risk, Fakhfakh and Jarboui (2022) highlight that board structure and quality significantly influence audit risk.…”

Audit committee effectiveness and audit quality: the moderating effect of joint audit

“…The size of the AC is a significant component in improving AQ since larger committees are more likely to draw on a broader knowledge base and diverse experience, allowing them to perform their duties more successfully (Vafeas, 2005). As stated by Fakhfakh and Jarboui (2021), the size of the AC is a critical component of its effectiveness. According to the Egyptian Institute of Directors (EIOD) (2016), an AC should have at least three members.…”

“…Second, the study contributes to the theoretical understanding and adds to the current literature on ACEFF, AQ; and JA, especially in the Egyptian context. Third, most of the previous studies used individual AC characteristics to assess the impact of the AC on AQ (Adeyemi and Fagbemi, 2010;Alawaqleh, Almasria, & Alsawalhah, 2021;Fakhfakh and Jarboui, 2021;Karaibrahimoglu, 2013;Khudhair et al, 2019;Kuang, 2011;Saidu and Aifuwa, 2020). However, the present research employs a composite measure for the ACEFF score.…”