Examining the Independent Audit Committee, Managerial Ownership, Independent Board Member and Audit Quality in Listed Banks

  • Hisar Pangaribuan Adventist University of Indonesia, Indonesia
  • Jenny Sihombing Adventist University of Indonesia, Indonesia
  • Oluwatoyin Muse Johnson Popoola Tunku Puteri Intan Safinaz School of Accountancy, Universiti Utara Malaysia
Keywords: Managerial Ownership, Independent Board Member, Independent Audit Committee, Audit Quality, Banking Sector


This research examines the effects of the independent audit committee on the relationship between managerial ownership and independent board member on audit quality in the Indonesian listed banks. Primarily, the study examines the direct relationship of managerial ownership, independent board member and independent audit committee on the audit quality of listed banks in the Indonesian Stock Exchange. Also, the current study explores the mediating effect, indirect effect, of the independent audit committee on the relationship between managerial ownership, independent board member, and audit quality in the listed banks in Indonesia. The results show that the independent board member has a significant impact on the independent audit committee and the audit quality. The study reveals that managerial ownership does not influence audit quality. The adoption of the independent audit committee with a long tenure of years can be potentially risky and less creative. As a result, their oversight functions may be in jeopardy, impaired or reduced performances. The research findings reveal no significant indirect effects of the independent audit committee on the relationship between managerial ownership, independent board member and audit quality in the banks listed in IDX. Independent board members need to renew the appointment of the independent audit committee members to improve the quality of the oversight functions undertaken by the audit committee, and hence, enhance audit quality.


Adams, R. B. (2011). Governance and the Financial Crisis. International Review of Finance, 12(1), 7-38.

Adams, R., & Mehran, H. (2008). Corporate performance, board structure, and their determinants in the banking industry.

Al-Hussain, A. H. (2009). Corporate Governance Structure Efficiency and Bank Performance in Saudi Arabia. (PhD. Thesis) The University of Phoenix.

Andres, P., & Vallelado, E. (2008). Corporate Governance in Banking: The Role of the Board of Directors. Journal of Banking and Finance, 32(12), 2570-2580.

Badan Pengawas Pasar Modal dan Lembaga Keuangan, Kementerian Keuangan Republik Indonesia. (2012). Salinan Keputusan Ketua Badan Pengawas Pasar Modal dan Lembaga Keuangan, No. Kep-643/Bl/2012. Tentang Pembentukan dan Pedoman Pelaksanaan Kerja Komite Audit.

Balsam, S. (2002). Accrual Management, Investor Sophisticated, and Equity Valuation: Evidence from 10-Q Fillings. Journal of Accounting Research, 40(4), 987-1012.

Baxter, P., & Cotter, J. (2009). Audit Committees and Earnings Quality. Accounting & Finance, 49(2), 267-290.

Beisland, L.A., Mersland, R., & Strom, R.O. (2015). Audit Quality and Corporate Governance: Evidence from the Microfinance Industry. International Journal of Auditing, 19(3), 218-237.

Belkaoui, A. R. (2004). Accounting Theory. Fifth Edition. London: Thomson.

Brooke, S. (2014). Seeking a Path Forward on Audit Quality Indicators: Audit Committees Play a Vital Role in Ensuring Audit Quality. The CPA Journal, 84(6), 8.

Carcello, J.V., Hermanson, D.R., Neal, T.L, & Riley, R.A, Jr. (2002). Board Characteristics and Audit Fees. Contemporary Accounting Research, 19(3), 365-384

Choudhry, M. (2011). An Introduction to Banking: Liquidity Risk and Asset - Liability Management. 1st edition. John Wiley and Sons.

Coles, L. J., Naveen, D. D., & Naveen, L. (2008). Boards: Does one size fit all? Journal of Financial Economics, 87(2), 329-356.

De Angelo. L.E. (1981). Auditor Size and Audit Quality. Journal of Accounting and Economics, 3(3), 183-199

Docherty, A., & Viort, F. (2014). Better Banking: Understanding and Addressing the Failures in Risk Management, Governance and Regulation. Hoboken: Wiley.

Favere Marchesi, M. (2000). Audit Quality in ASEAN. The International Journal of Accounting. 35(1), 121-149.

Fritz, M. S., & MacKinnon, D. P. (2008). A Graphical Representation of the Mediated Effect. Behaviour Research Methods, 40(1), 55-60.

Graham, J.R., Sonali, H., & Narasimhan, K. (2011). Corporate Governance, Debt, and Investment Policy during the Great Depression. Management Science, 57(12), 2083-2100.

Griffin, P., Lont, D., & Sun, Y. (2008). Corporate Governance and Audit Fees: Evidence of Countervailing Relations. Journal of Contemporary Accounting and Economics, 4(1), 18–49.

Hagenbaugh, R. L. (2003). Current Issues: Corporate Governance and Sarbanes Oxley-What You Need to Know. Fraud Magazine.

Hamdan, A.M., Sarea, M.A., & Reyad, S.M.R. (2013). The Impact of Audit Committee Characteristics on the Performance: Evidence from Jordan. International Management Review, 9(1), 32-42

Hapsoro, D. (2012). Pengaruh Corporate Governance dan Kualitas Audit Terhadap Pengungkapan Corporate Social Responsibility. Jurnal Akuntansi dan Manajemen, 23(3), 199-215.

Hair, J. F., Hult, G. T. M., Ringle, C. M., & Sarstedt, M. (2017). A Primer on Partial Least Squares Structural Equation Modeling (PLS-SEM). 2nd Edition. Thousand Oaks: Sage.

Harris, M., & Raviv, A. (2008). A Theory of Board Control and Size. The Review of Financial Studies, 21(4), 1797–1832.

Hay, D., Knechel, W., & Ling, H. (2008). Evidence on the impact of internal control and corporate governance on audit fees. International Journal of Auditing, 12(1), 9-24. http://dx.doi.org/10.1111/j.1099-1123.2008.00367.x

Hermalin, B., Weisbach, M., (2003). Boards of directors as an endogenously determined institution: a survey of the economic literature, Federal Reserve Bank of New York Economic Policy Review, 9, 7-26.

Kane G D and Velury U (2005). The Impact of Managerial Ownership on the Likelihoodof Provision of High Quality Auditing Services, Review of Accounting and Finance, 4(2), 86-106

Kirkpatrick, G. (2009). The Corporate Governance Lessons from the Financial Crisis. OECD Journal: Financial Market Trends, 2009(1), 61-87.

Kline, R. B. (2010). Principles and practice of structural equation modeling (3rd ed.). New York: Guilford Press.

Kuncoro, M., & Suharjono. (2012). Manajemen Perbankan: Teori dan Aplikasi. Edisi ke-2, Fakultas Ekonomika dan Bisnis UGM, Yogyakarta.

Kusnadi, Y., Leong , K.S., Suwardy, T., & Wang, J. (2016). Audit committees and financial reporting quality in Singapore. Journal of Business Ethics, 139(1), 197-214.

Lehn, K., Sukesh, P., & Mengxin, Z. (2009). Determinants of the Size and Structure of Corporate Boards: 1935-2000. Financial Management, 38(4), 747-780.

Limpt, D.V. (2011). Management Ownership and Auditor Choice of Small and Medium Sized Firms in Germany. (MSc Thesis) Department of Accountancy, Faculty of Economics and Business Studies, Tilburg University, Germany.

McDaniel, L., Martin, R. & Maines, L. (2002). Evaluating Financial Reporting Quality: the Effects of Financial Expertise vs. Financial Literacy. Journal of Accounting Review, 77, 139-167.

Mohamed, M. S., & Mohamed, A. E. (2012). Corporate Governance Practices and Audit Quality: An Empirical Study of the Listed Companies in Egypt. World Academy of Science, Engineering and Technology, 71(1), 1292-1297.

Muhamad, R., Shahimi, S., Yahya, Y., & Mahzan, N. (2009). Disclosure quality on governance issues in annual reports of Malaysian PLCs. International Business Research, 2(4), 61.

Murphy, M.L. (2014). Improving Audit Quality: An Interview with Cynthia M. Fornelli, an Executive Director of the Center for Audit Quality. The CPA Journal (February 2014).

Nakhodchari, F. S., & Garkaz, M. (2014). Correlation Between Ownership Concentration, Voluntary Disclosure, and Information Asymmetry in Companies Listed in the Stock Exchange, Kuwait Chapter of Arabian Journal of Business and Management Review, 4(1), 423-432.

Nosheen, S. (2013). Impact of Board Leadership and Audit Quality on Disclosure Quality: Evidence from Pakistan. International Journal of Disclosure and Governance, 10(4), 311-327

Otoritas Jasa Keuangan- Republik Indonesia. (2014). Salinan Peraturan Otoritas Jasa Keuangan N0. 55 /POJK.04/2015, Tentang Direksi dan Dewan Komisaris Emiten atau Perusahaan Publik. Retrieved from http://www.komiteaudit.or.id/wp-content/uploads/2017/07/POJK-55.-Pembentukan-dan-Pedoman-Pelaksanaan-Kerja-Komite-Audit.pdf on 2 October 2017.

Peni, E. & Vähämaa, S. (2012). Did Good Corporate Governance Improve Bank Performance during the Financial Crisis? Journal of Financial Services Research, 41(1), 19–35.

Popoola, O. M. J. (2014). Forensic Accountants, Auditors, and Fraud: Capability and Competence requirements in the Nigerian Public Sector. (PhD. Thesis), Othman Yeop Abdullah Graduate School of Business, Universiti Utara Malaysia, Malaysia.

Rachdi, H., & Ameur, I.G.B. (2011). Board Characteristics, Performance and Risk Taking Behaviour in Tunisian Banks. International Journal of Business and Management, 6(6), 88-97.

Rouf. A. (2011). Corporate Characteristics, Governance Attributes and the extent of voluntary disclosure in Bangladesh. African Journal of Business Management, 5(19), 7836-7845.

Santanu, M., Hossain, M., & Deis, D. R. (2007). The Empirical Relationship Between Ownership Characteristics and Audit Fees. Review of Quantitative Finance and Accounting, 28(3), 257-285

Sekaran, U., & Bougie, R. (2010). Research methods for business: A skill-building approach (5th ed.). Haddington: John Wiley & Sons.

Shen, C. H., & Chih, H. L. (2007). Earnings Management and Corporate Governance in Asia’s Emerging Markets. Corporate Governance: An International Review, 15(5), 999-1021.

Silveira, A.D.M.D., & Barros, L.A.B.D.C. (2006). Corporate Governance Quality and Firm Value in Brazil). Available at SSRN: https://ssrn.com/abstract=923310 or http://dx.doi.org/10.2139/ssrn.923310

Sreejesh, S., Mohapatra, S., & Anusree, M.R. (2014). Business Research Methods: An Applied Orientation. Springer International Publishing Switzerland. XXIII, 281, doi:10.1007/978-3-319-00539-3.

Sudsomboon S. and Vssahawanitchakit P. (2009), Professional audit competencies: The effect on THAI‟S CPAs audit quality, reputation, and success, Review of Business Research, 9(3), 66-85.

Subramanyam, K. R. (2014). Financial Statement Analysis. 11th edition. McGraw-Hill, New York. 816 pages

Taqi, M. (2013). Consequences of Audit Quality in Signaling Theory Perspective. GSTF Journal on Business Review (GBR), 2(4), 133-136.

Velnampy, T., Sivathaasan, N., Tharanika, R. & Sinthuja, M. (2014). Board Leadership Structure, Audit Committee and Audit Quality: Evidence from Manufacturing Companies in Sri Lanka. International Journal of Business and Management, 9(4), 76.

Vlaminck, D. N., & Sarens, G. (2013). The relationship between audit committee characteristics and financial statement quality: Evidence from Belgium. Journal of Management & Governance, 19(1), 145-166.

Wahba, H. (2014). Capital structure, managerial ownership and firm performance: evidence from Egypt. Journal of Management & Governance, 18(4), 1041-1061.

Yasin F. M., & Nelson S. P. (2012) Audit committee and internal auditing: Implication on audit quality. Journal of Economic Management and Accounting, 20(2), 187-218.

How to Cite
Pangaribuan, H., Sihombing, J., & Popoola, O. M. J. (2018). Examining the Independent Audit Committee, Managerial Ownership, Independent Board Member and Audit Quality in Listed Banks. Indian-Pacific Journal of Accounting and Finance, 2(2), 4-23. https://doi.org/10.32890/ipjaf.2018.2.2.45
Main Section

Most read articles by the same author(s)

1 2 > >>