Board Characteristics and External Audit Quality: Complementary or Substitute Mechanisms? The Belgium Case

Abstract

In this paper, we examine the impact of directors’ board on external audit quality over the period 2003-2007 for 96 Belgian listed companies on the Euronext Brussels Stock Exchange. We measure audit quality by using an index for that. To construct the index of audit quality IQAUD, we follow the approach of Depeors (2010). Five attributes are considered: Big4 auditor, co-auditor, Big4 auditor and co-audit, seniority of auditor and audit fees.The composition of the index IQAUD is determined by using the “step by step” method of Cronbach’s alpha coefficient (Curt et al., 1997). This procedure allows finding a subset of items that must be as reliable as possible. The results of our regression model, using panel data, confirm that external audit quality and board characteristics (independence and diligence) are complementary mechanisms. However, we can’t conclude to any significant relationship of audit quality with board dual structure and its size.

Keywords: corporate governance, directors’ board, index of external audit quality