Audit Quality and Corporate Governance: Evidence from the Microfinance Industry

59 Pages Posted: 30 Nov 2012

See all articles by Leif Atle Beisland

Leif Atle Beisland

University of Agder

Roy Mersland

University of Agder

R. Øystein Strøm

OsloMet - Oslo Metropolitan University

Date Written: November 29, 2012

Abstract

This study uses a unique, hand-collected sample of microfinance institutions from 73 countries that typically are not investigated in accounting research to analyze the relationships between audit quality and governance mechanisms. We examine two measures of audit quality, namely, the use of Big Four auditors and the presence of internal auditors who report to the boards of these institutions. The empirical analysis of this study reveals that these two quality metrics are highly related, although we also demonstrate that these metrics capture distinctive aspects of audit quality. In particular, the presence of internal auditors is related to other indicators of stricter governance, whereas the use of Big Four auditors is generally unrelated to other control mechanisms. This study illustrates that there is no single association between audit quality and governance; instead, the relationships between these two characteristics are dependent on the specific mechanism that is investigated. However, for situations in which a significant relationship between audit quality and governance does exist, the sign of this relationship is always positive. Thus, our data support the complementarity view of these two traits that is espoused by prior research. We find no support for the contention that these control mechanisms function as substitutes.

Keywords: audit quality, microfinance, governance, emerging markets

Suggested Citation

Beisland, Leif Atle and Mersland, Roy and Strøm, Reidar Øystein, Audit Quality and Corporate Governance: Evidence from the Microfinance Industry (November 29, 2012). Available at SSRN: https://ssrn.com/abstract=2182485 or http://dx.doi.org/10.2139/ssrn.2182485

Leif Atle Beisland (Contact Author)

University of Agder ( email )

Serviceboks 422
Kristiansand, VEST AGDER 4604
Norway

Roy Mersland

University of Agder ( email )

Serviceboks 422
N-4604 Kristiansand, VEST AGDER 4604
Norway

HOME PAGE: http://www.uia.no/microfinance

Reidar Øystein Strøm

OsloMet - Oslo Metropolitan University ( email )

P.O. Box 4
Oslo, 0130
Norway
+47 97968500 (Phone)

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