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
Date Written: 2019
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: Suggested Citation