Information Asymmetries and Intra-company Monitoring: An empirical analysis of nonlinear relationships between company characteristics and the size of the internal audit function

35 Pages Posted: 30 Jun 2019 Last revised: 24 Nov 2021

See all articles by Marc Eulerich

Marc Eulerich

University of Duisburg-Essen, Mercator School of Management

Christian Lohmann

University of Wuppertal

Date Written: June 25, 2019

Abstract

The internal audit function (IAF) has become one of the main pillars of good corporate governance. Empirical findings show that the size of the IAF varies considerably across companies. This study analyzes the relationships between selected company characteristics as determinants of intra-company information asymmetries and the size of the IAF as an indicator of intra-company monitoring. We test these relationships by analyzing comprehensive survey data obtained from chief audit executives from 283 Austrian, German, and Swiss companies. Using a nonparametric regression approach, we identify significant nonlinear relationships between company characteristics and IAF size. The empirical analysis identifies threshold levels for several metric company characteristics, such as the number of employees and the number of subsidiaries, whose relationships with the size of the IAF change its intensity.

Keywords: Company characteristics, Company size, Internal audit, Internal audit function, Nonparametric regression

JEL Classification: G34, M40, M49

Suggested Citation

Eulerich, Marc and Lohmann, Christian, Information Asymmetries and Intra-company Monitoring: An empirical analysis of nonlinear relationships between company characteristics and the size of the internal audit function (June 25, 2019). Available at SSRN: https://ssrn.com/abstract=3409928 or http://dx.doi.org/10.2139/ssrn.3409928

Marc Eulerich (Contact Author)

University of Duisburg-Essen, Mercator School of Management ( email )

Lotharstrasse 65
Duisburg, 47057
Germany
00492033792600 (Phone)

HOME PAGE: http://www.msm.uni-due.de/ircg

Christian Lohmann

University of Wuppertal ( email )

Gaußstraße 20
42097 Wuppertal
Germany

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