Antecedents of Audit Quality in MENA Countries: The Effect of Firm- and Country-Level Governance Quality

Sarhan, A.A., Ntim, C.G., and Al-Najjar, B., ‘Antecedents of Auditor Choice and Fees in MENA Countries: The Effect of Firm- and Country-Level Governance’, Journal of International Accounting, Auditing and Taxation, 35, 85-107, 2019

46 Pages Posted: 9 Mar 2020

See all articles by Ahmed Sarhan

Ahmed Sarhan

University of Huddersfield - Business School

Collins G. Ntim

University of Southampton Business School, UK; University of Southampton

Basil Al‐Najjar

University of London - School of Business, Economics and Informatics

Date Written: 2019

Abstract

This paper investigates the effect of firm- and country-level governance quality on audit quality, as measured by (i) auditor choice and (ii) audit fees. Our findings are three-fold. First, our evidence suggests that board independence is positively related to engaging a Big 4 auditor, while family shareholdings show a negative association with hiring a Big 4 auditor. Second, board size, board independence and director shareholdings are positively related to audit fees, while government shareholdings and family shareholdings show a negative relationship with audit fees. Third, higher country-level governance quality is positively associated with hiring a Big 4 auditor and paying higher audit fees. Overall, we provide evidence that external audit quality in Middle Eastern and North African (MENA) countries is affected by firm- and country-level governance quality, which suggests that governance quality and external audit quality seem to be complements in protecting stakeholders interests through securing higher audit quality. Our results are robust to controlling for alternative measures and endogeneities.

Keywords: Firm- and Country-Level Governance Quality; Audit Quality; Auditor Choice; Audit Fees; Mena Countries.

JEL Classification: G30; G32; G34; M42

Suggested Citation

Sarhan, Ahmed and Ntim, Collins G. and Al-Najjar, Basil, Antecedents of Audit Quality in MENA Countries: The Effect of Firm- and Country-Level Governance Quality (2019). Sarhan, A.A., Ntim, C.G., and Al-Najjar, B., ‘Antecedents of Auditor Choice and Fees in MENA Countries: The Effect of Firm- and Country-Level Governance’, Journal of International Accounting, Auditing and Taxation, 35, 85-107, 2019, Available at SSRN: https://ssrn.com/abstract=3534931 or http://dx.doi.org/10.2139/ssrn.3534931

Ahmed Sarhan (Contact Author)

University of Huddersfield - Business School ( email )

Queensgate
Huddersfield HD1 3DH
United Kingdom

Collins G. Ntim

University of Southampton Business School, UK ( email )

Southampton Business School
Highfield
Southampton, England SO17 IBJ
United Kingdom
+44 (0) 238059 4285 (Phone)
+44 (0) 238059 3844 (Fax)

HOME PAGE: http://www.southampton.ac.uk/business-school/about/staff/cgn1n11.page

University of Southampton ( email )

Southampton, SO17 1BJ
United Kingdom

Basil Al-Najjar

University of London - School of Business, Economics and Informatics ( email )

Malet Street
Bloomsbury
London, WC1E 7HX
United Kingdom

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