Corporate Governance & Auditor Choice in Malaysia

Abstract

The aim of this paper is to investigate the determinants of firm's auditor choice in Malaysia in respect of their corporate governance mechanisms. A logit regression model was developed to test the impact of firms' internal corporate governance mechanism on auditor choice decisions made by public listed companies listed on main board of Bursa Malaysia from year 2006 to 2015. Five variables are used to proxy for firm's internal corporate mechanism which are the ownership concentration, the duality of CEO and chairman of BOD, the size of audit committee, the size of BOD and the number of independent directors on the board. All auditors in Malaysia were classified into Big Four and non-Big Four, assuming Big Four auditors can provide higher quality audit services. The final result show that firms with less concentrated ownership, with larger size of audit committee, larger size of the BOD, with lower proportion of independent directors on the board, or in which CEO and BOD's chairman are not the same person are more likely to hire a high-quality auditor. Hence, it suggests that when benefits from lowering capital raising costs are trivial, firms with good corporate governance mechanism are prone to choose a high-quality auditor.

Auditor Choice Prediction Model Using Corporate Governance and Ownership Attributes: Machine Learning Approach

“…Prediction of auditor choice using traditional statistic; logistic regression is a well-documented topic [17]- [24]. For example, [23] study auditor choice prediction, using eight inputs from firms-specifics characteristic and corporate governance categories.…”

“…In Malaysia setting, [17] develop a logit regression model to predict auditor selection decision among Malaysian listed firms. The model uses five corporate governance inputs and six firms-specifics characteristic inputs.…”

“…The prevalence and significant impact of hiqh-quality auditors on financial reporting process has sparked the interest to study on auditor selection models [17]- [24].…”

External audit quality and clients' corporate governance mechanisms in Nigeria: Any nexus?

“…Prior studies have extensively used the agency theory to explain the need for a contractual relationship between shareholders and management. [Soyemi, Olufemi & Adeyemi (2020), Wisdom, Love et al (2018) Nasrudin, Mohamed & Shafie (2017]. The agency theory provides a link with corporate governance that points that separation of ownership and control and widespread ownership.…”

“…The audit function plays a crucial role not only to monitor managerial actions but also to create a better information environment as well as providing a secondary source of assurance against corporate failures. Nasrudin, et. al.…”