Mediating Effect of Quality-Differentiated Auditor on the Relationship between Managerial Ownership and Monitoring Mechanisms

  • Rachael Oluyemisi Arowolo Chrisland University, Ajebo, Ogun State, Nigeria
  • Ayoib Che Ahmad Tunku Puteri Intan Safinaz School of Accountancy, Universiti Utara Malaysia
  • Oluwatoyin Muse Johnson Popoola Tunku Puteri Intan Safinaz School of Accountancy, Universiti Utara Malaysia
  • Hisar Pangaribuan Adventist University of Indonesia, Indonesia
Keywords: Agency Problem, Audit Market, Managerial Ownership, Monitoring Mechanisms, Quality-Differentiated Auditors

Abstract

Over the past decade, most studies in corporate governance and audit market have emphasised the importance of monitoring mechanisms (MM), especially after the global economic meltdown resulting from the Enron saga. The literature on MM continues growing as many countries especially the Sub-Saharan Africa are still struggling to come out of the effect of the economic meltdown and businesses continues to fail or merge. This paper, therefore, examines the relationship between Managerial Ownership (MO) and MMs with quality-differentiated auditors (QDA) as the channel for the relationship. The study used data from non-financial listed companies in Nigeria providing empirical supports that MO significantly associates with MMs in the right direction. Likewise, QDA also influences the MMs in the right direction suggesting that QDA is necessarily required to enhance adequate MMs. The findings of this study provide support for the association of MO and MMs with the intervention of QDA for solutions to agency problems. Companies should, therefore, motivate the management to own shares within the reasonable range that aligns the interest of the management with that of the shareholders. This paper adds to knowledge especially in Nigeria and Sub-Saharan Africa by examining a mediating effect to depict the relationship between MO and MM, which are not evident in prior studies.

References

Abbott, L. J., Parker, S., & Peters, G. F. (2010). Serving Two Masters: The Association between Audit Committee Internal Audit Oversight and Internal Audit Activities. Accounting Horizons, 24(1), 1–24. http://doi.org/10.2308/acch.2010.24.1.1

Al-Janadi, Y., Rahman, R. A., & Omar, N. H. (2013). Corporate Governance Mechanisms and Voluntary Disclosure in Saudi Arabia. Research Journal of Finance and Accounting, 4(4), 25–36.

Al-Rassas, A. H. & Kamardin, H. (2016). Earnings Quality and Audit Attributes in High Concentrated Ownership Market. Corporate Governance, Vol. 16, No. 2, pp. 377-399.

Anyanwu, J. C., & Erhijakpor, A. E. O. (2009). Nigeria's Economic Competitiveness in the African Context. International Journal on Governmental Financial Management, 9(20), 98-118.

Arnold, P. J. (2012). The Political Economy of Financial Harmonization: The East Asian Financial Crisis and the Rise of International Accounting Standards. Accounting, Organizations and Society, 37(6), 361–381.

Arowolo, R.O., Che-Ahmad, A., and Popoola, O.M.J. (2017). Effect of Risk Management Committee on Monitoring Mechanisms. Indian-Pacific Journal of Accounting and Finance, 1(2), 38-49.

Arowolo, R.O. and Che-Ahmad, A. (2016). Managerial Ownership, Horizontal Agency Costs and Monitoring Mechanisms. The European Proceedings of Social & Behavioural Sciences, ISSC 2016: International Soft Science Conference, Malaysia (pp 258-266).

Arowolo, R.O and Che-Ahmad, A (2017). Quality-differentiated Auditors, Block-holders and Monitoring Mechanisms. Indian-Pacific Journal of Accounting and Finance, 1(1), 62-76.

Babatunde, M. A., & Olaniran, O. (2009). The effects of internal and external mechanism on governance and performance of corporate firms in Nigeria. Corporate Ownership & Control, 7(2), 330-344.

Baron, R. M.. & Kenny, D. A. (1986). The Moderator-Mediator Variable Distinction in Social Psychological Research : Conceptual, Strategic, and Statistical Considerations. Journal of Personality and Social Psychology, 51(6), 1173–1182.

Cadbury, A. (1992). Cadbury Report: The Financial Aspects of Corporate Governance. Tech report, HMG, London.

Georgiev, L. (2013). Corruption - A Necessary or Surmountable Evil. Megatrend Revija, 10(1), 83–100.

DeAngelo, L. E. (1981). Auditor size and audit quality. Journal of Accounting and Economics, 3(3), 183–199.

Huson, M. R., Parrino, R., & Starks, L. T. (2001). Internal Monitoring Mechanisms and CEO Turnover : A Long-Term Perspective. The Journal of Finance, 56(6), 2265–2297.

Hope, O.-K., Thomas, W.B., Vyas, D., 2011. Financial credibility, ownership, and financing constraints in private firms. Journal of International Business Studies, 42(7), 935–957.

Iwasaki, I., & Reenen, J. V. (2011). Economic Transition, Firm Organization, and Internal Control. International Conference on Economic and Social Development, Higher School of Economics, Moscow.

Iyoha, F. O., & Oyerinde, D. (2010). Accounting infrastructure and accountability in the management of public expenditure in developing countries: A focus on Nigeria. Critical Perspectives on Accounting, 21(5), 361-373.

Jensen, M.C. and Meckling, W.H. (1976), Theory of the firms: managerial behaviour, agency costs and ownership structure, Journal of Financial Economics, 3(4), 305-60.

Johari, Kuschnik, B. (2008). The Sarbanes Oxley Act: Big Brother is Watching You or Adequate Measures of Corporate Governance Regulation? Rutgers Business Law Journal, 5(1), 64–95.

Lamorde, I. (2012). Nigeria: more boost for corruption, a paper presentation on the EFCC Budget Defence at the Senate Chamber, Federal Republic of Nigeria, Vanguard Newspaper, 27 November.

Mustapha, M., & Che-Ahmad, A. (2011a). Agency Costs of Debt and Monitoring. International Review of Business Research Papers, 7(4), 118–129.

Mustapha, M., & Che-Ahmad, A. (2011b). Agency theory and managerial ownership: evidence from Malaysia. Managerial Auditing Journal, 26(5), 419–436.

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

Popoola, O.M.J., Che-Ahmad, A.B., & Samsudin, R.S. (2014). An Empirical Investigation of Fraud Risk Assessment and Knowledge Requirement on Fraud Related Problem Representation in Nigeria. Accounting Research Journal, 28(1), 78-97.

Reddy, K., & Sharma, U. (2014). Institutional Antecedents of Principle-Based Corporate Governance Practices: A Case Study of Publicly Listed Companies in Fiji. Journal of Accounting & Organizational Change, 10(1), 49–82.

Soobaroyen, T., & Devi Mahadeo, J. (2012). Do Corporate Governance Codes Improve Board Accountability? Evidence From an Emerging Economy. Qualitative Research in Accounting & Management, 9(4), 337-362.

Transparency International. (2010). Spotlight: Gender and Corruption. Anti-Corruption Research News, 2, 1–3.

Transparency International (2011). Corruption Perception Index (CPI, 2010), http://www.transparency.org/research/cpi/overview.

Transparency International (2012). Corruption Perception Index (CPI, 2011), http://www.transparency.org/research/cpi/overview.

Transparency International (2013). Corruption Perception Index (CPI, 2012), http://www.transparency.org/research/cpi/overview.

Transparency International (2014). Corruption Perception Index (CPI, 2013), http://www.transparency.org/research/cpi/overview.

Transparency International (2015). Corruption Perception Index (CPI, 2014), http://www.transparency.org/research/cpi/overview.

Transparency International (2016). Corruption Perception Index (CPI, 2015), http://www.transparency.org/research/cpi/overview.

Transparency International (2017). Corruption Perception Index (CPI, 2016), http://www.transparency.org/research/cpi/overview.

Transparency International (2017). Corruption Perception Index (CPI, 2017), http://www.transparency.org/research/cpi/overview.

Uadiale, 0. (2010), The Impact of Board Structure on Corporate Financial Performance in Nigeria. International Journal of Business and Management, 5(10), 155–166.

Zhao, X., Lynch Jr., J. G., & Chen, Q. (2010). Reconsidering Baron and Kenny: Myths and Truths about Mediation Analysis. Journal of Consumer Research, 37(2), 197–206.
Published
2018-04-01
How to Cite
Arowolo, R. O., Che Ahmad, A., Popoola, O. M. J., & Pangaribuan, H. (2018). Mediating Effect of Quality-Differentiated Auditor on the Relationship between Managerial Ownership and Monitoring Mechanisms. Indian-Pacific Journal of Accounting and Finance, 2(2), 65-77. Retrieved from http://ipjaf.omjpalpha.com/index.php/ipjaf/article/view/49
Section
Main Section

Most read articles by the same author(s)