The impact of institutional ownership and corporate debt on audit quality

Abstract

Purpose -The purpose of this paper is to examine the impact of institutional holdings and corporate debts on audit quality, proxied by auditor industry specialization. Design/methodology/approach -The tests use regression analysis for a sample of 396 companyyears from 2003 to 2008 and control for factors known to affect auditor industry specialization. Findings -The results show a positive association between institutional ownership and auditor industry specialization. These results are consistent across most measures of auditor industry specialization and different thresholds of audit firm market share. In addition, a positive link is reported between corporate debt and industry specialization by auditors. This result, however, holds under the composite proxy in terms of total assets only.Research limitations/implications -The major limitation is the unavailability of data on audit fees and sales (revenues) to measure auditor market share. Practical implications -Institutional investors and debtholders have preference for auditors who can enhance the credibility of financial reporting and improve the quality of financial information and the results document that the choice of specialist auditors can potentially influence this objective. Originality/value -The paper provides information to academics, regulators, companies, and auditors concerning the impact of institutional investors and creditors on the choice of industry specialists. Also, it shows the importance of industry specialization on audit quality.

Impact of Ownership Characteristics on Modified Audit Opinion in Jordan

“…Almutairi studied the influence of INOWN and company debts on audit quality, proxies by auditor industry speciality. The results displayed a positive relationship between INOWN and auditor industry specialization [34]. Kouaib and Jarboui studied the relationship between INOWN and audit quality in China.…”

“…The relationship between INOWN and the quality of financial statement can be explicated by agency theory which asserted that INOWN can enhance monitoring of management in handling the firm by reducing agency clashes between stakeholders and managers, thereby substantially reduce misreporting of financial information and improve the efficacy of supervising financial statement [33]. It is considered that ownership concentration is the most effective tool that ensures the appropriate management of companies in developing markets [34,35]. This is because institutional stakeholders convey the means to manage companies and precisely oversee the directors and handling the management verdicts.…”

Institutional Ownership and Disclosure of Forward-Looking Information: Evidence From Egypt

“…Similar results were shown in Jordan by Zureigat (2011), who reported a positive and significant relationship between highly concentrated institutional investors and hiring big audit firm. Also, in Kuwait, Almutairi (2013) conducted a study to examine the effect of institutional ownership and firm debts on the quality of audit. He found a positive association between hiring industry specialized audit firm and both institutional ownership and company debt.…”

FAKTOR REPRESENTASI STOCK HOLDER DAN DEBT HOLDER BERPENGARUH TERHADAP KEPUTUSAN PEMILIHAN AUDITOR BERKUALITAS1 (Studi Empiris Pada Perusahaan Manufaktur Yang Terdaftar Di Bursa Efek Indonesia)

“…Hal ini berhubungan dengan memberikan informasi keuangan yang dapat dihandalkan, sehingga dengan memilih auditor berkualitas,perusahaanberupaya untuk memberikan jaminan kulitas informasi melalui penggunaan auditor yang berkualitas tinggi. Hal ini didukung temuan Almutairi (2013) yang menemukan adanya hubungan positif antara leverage dengan kualitas auditor dalam konteks auditor spesialis. Oleh karena itu dapat dirumuskan hipotesis ketiga sebagai berikut: H3: Semakin tinggi leverage perusahaan akan semakin besar kecenderungan perusahaan menggunakan auditor berkualitas.…”