Board diversity, audit committee characteristics and audit quality: The moderating role of control-ownership wedge

Abstract

This study illustrates how control-ownership wedge impacts the monitoring role of the corporate board through the quality of audit services in Turkey. Turkey has made essential amendments in the field of external audit in order to enhance the quality of the financial report and integrate its own capital market with that of the EU. It would be of interest to examine the influence of these changes on clients' demand for high quality audit. The agency theory is integrated with the resource dependence theory to show that boards possess distinct incentives and ability to demand high quality audit to monitor management activities. Logistic regression and feasible generalized least squares (FGLS) were used for regression estimations. The results indicate that board demographics, cognitive and structural diversity of board of directors, audit committee characteristics and audit quality are complementary and control-ownership wedge weakens the relationship between them which is an unfavorable outcome for minority shareholders. Thus, this study proposes that regulators should increase law enforcement to enhance good corporate governance in Turkey to accommodate the unique features of wedge firms and provide a protected environment for minority shareholders.

The Association between Auditor Type and the Extent of Forward-Looking Disclosures

“…The board of directors" size (BODSIZE) is measured by the total number of executive and non-executive directors on the board at the end of the fiscal year. Both Agyei-Mensah 2016and Mustafa et al (2018) found a positive association between board size and audit quality, and between board size and disclosure quality. They argue that more directors on the board provide more resources and experience, which will enhance board monitoring ability, enhance information transparency and increase the amount of information disclosed in annual reports.…”

“…Board of directors" financial expertise (BODFX) was coded 1 if more than half of the board members had finance or accounting experience and 0 otherwise. Mustafa et al (2018) found that board members with financial background and experience tend to demand better audit services to enhance their monitoring capabilities over management. Besides, the board of director's independence (BODIND) measured by the number of non-executive directors on the board.…”

“…Besides, the board of director's independence (BODIND) measured by the number of non-executive directors on the board. Agyei-Mensah (2016) and Mustafa et al (2018) studies reported that independent board members tend to provide external pressure to enhance firm performance, lower the occurrence of financial reporting problems or fraud, and increase the level of disclosure. Firm size (FSIZE) is measured by the book value of total assets.…”

The Impact of Audit Fees on Forward-Looking Disclosures in Integrated Reports

“…independent directors among the board. According to Agyei-Mensah (2019) and Mustafa et al (2018) study results, independent board members tend to provide external pressure to enhance firm performance, lower levels of financial reporting problems, and increase disclosure levels.…”

Minority Shareholders Rights and Audit Quality: Empirical Evidence from Turkey

“…Most firms are not listed on stock exchanges and even when they are, a single large shareholder or a small group of shareholders retains a controlling share in the firm (Mustafa, Che-Ahmad, & Chandren, 2018). Since the concentrated ownership structure makes firms impervious to takeovers, the controlling stake commonly stays with the founder of the company and his family, even when the company is large and publicly listed.…”