Quality-differentiated Auditors, Block-holders and Monitoring Mechanisms


  • Rachael Oluyemisi Arowolo Tunku Puteri Intan Safinaz School of Accountancy, Universiti Utara Malaysia
  • Ayoib Che Ahmad Tunku Puteri Intan Safinaz School of Accountancy, Universiti Utara Malaysia




Monitoring mechanisms, Quality-differentiated auditors, Institutional block-holders, Individual block-holders, Agency problems, Nigeria


Many companies are closing down after the global economic melt-down of 2008 that involved ERON. The biggest problem for such business failures as identified by practitioners and academicians is information asymmetry existing in the relationship of the managements with the shareholders. This study seeks to investigate how monitoring mechanisms influence the block-holders in 111 Nigerian non-financial listed companies to resolve this problem. The study also investigates the mediating effect of the quality-differentiated auditors on the relationship between block-holders and monitoring mechanisms. The investigation adopted quantitative analysis using Stata to test related hypotheses. The findings indicate that the block-holders significantly influence monitoring mechanisms. The results also reveal that quality-differentiated auditors positively affect monitoring mechanisms and that it significantly explains the relationship between block-holders and monitoring mechanisms. Thus, this paper adds to knowledge on the subject of monitoring mechanisms and its scopes (directorship, internal and external auditing). These findings have policy implications for the board of directors to execute their monitoring responsibilities and guide them in external audit type selection. The findings also provide policy suggestions for both the internal and external auditors. The results can also be beneficial for the regulatory agencies and government to further review the guidelines for corporate governance. The paper adds to knowledge in Sub-Saharan Africa, especially, Nigeria by examining a mediating effect to expose the relationship between block-holders and monitoring mechanisms, which are not clear or exist in the previous studies.


Download data is not yet available.


Adeyemi, S. B., & Fagbemi, T. O. (2010). Audit Quality, Corporate Governance and Firm Characteristics in Nigeria. International Journal of Business and Management, 5(5), 169.

Akanle, O., Adebayo, K., & Adetayo, O. (2014). Fuel Subsidy in Nigeria: Contexts of Governance and Social Protest. International Journal of Sociology and Social Policy, 34(1/2), 88-106.

Akinbuli, S. F., & Kelilume, I. (2013). The Effects of Mergers and Acquisition on Corporate Growth and Profitability: Evidence from Nigeria. Global Journal of Business Research, 7(1), 43-58.

Ali, C. B., & Lesage, C. (2013). Audit pricing and nature of controlling shareholders: Evidence from France. China Journal of Accounting Research, 6(1), 21-34.

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.

Anderson, D., Francis, J. R., & Stokes, D. J. (1994). Auditing, Directorships and the Demand for Monitoring. Journal of Accounting and Public Policy, 12(4), 353-375.

Azim, M. I. (2012). Corporate Governance Mechanisms and Their Impact on Company Performance: A Structural Equation Model Analysis. Australian Journal of Management, 0312896212451032.

Babatunde, M. A., & Olaniran, O. (2009). The Effects of Internal and External Mechanisms on Governance and Performance of Corporate Firms in Nigeria. Corporate Ownership & Control, 7(2), 330-344.

Bachlechner, D., Thalmann, S., & Manhart, M. (2014). Auditing Service Providers: Supporting Auditors in Cross-Organizational Settings. Managerial Auditing Journal, 29(4), 286-303.

Bailey, D., & Katz, J. N. (2011). Implementing Panel Corrected Standard Errors in R: The PCSE Package. Journal of Statistical Software, 42(CS1), 1-11.

Banerjee, S., Couzoff, P., & Pawlina, G. (2012). External Monitoring, Managerial Entrenchment and Corporate Cash Holdings.

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.

Bennedsen, M., & Wolfenzon, D. (2000). The Balance of Power in Closely Held Corporations. Journal of Financial Economics, 58(1), 113-139.

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

Che-Ahmad, A., & Abidin, S. (2001). Auditor Industry Specialisation, Brand Name Auditors, and Financial Reporting Lag. Working Paper, Universiti Utara Malaysia.

Chen, K. Y., & Zhou, J. (2007). Audit committee, board characteristics, and Auditor Switch Decisions by Andersen's Clients. Contemporary Accounting Research, 24(4), 1085-1117.

Chow, C. W. (1982). The Demand for External Auditing: Size, Debt, and Ownership Influences. Accounting Review, 272-291.

Connelly, B. L., Hoskisson, R. E., Tihanyi, L., & Certo, S. T. (2010). Ownership as a form of corporate governance. Journal of Management Studies, 47(8), 1561-1589.

Craswell, A. T., & Taylor, S. L. (1991). The Market Structure of Auditing in Australia: The Role of Industry Specialization. Research in Accounting Regulation, 5(1), 55-77.

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

DeFond, M. L., Francis, J. R., & Wong, T. J. (2000). Auditor Industry Specialization and Market Segmentation: Evidence from Hong Kong. Auditing: A Journal of Practice & Theory, 19(1), 49-66.

Desender, K. A., Aguilera, R. V., Crespi, R., & GarcÍa‐cestona, M. (2013). When Does Ownership Matter? Board Characteristics and Behavior. Strategic Management Journal, 34(7), 823-842.

Eng, L. L., & Mak, Y. T. (2003). Corporate Governance and Voluntary Disclosure. Journal of Accounting and Public Policy, 22(4), 325-345.

Enofe, A. O., Mgbame, C. O., Aronmwan, E. J., & Ogbeide, I. E. (2013). Audit Reasonableness Expectation Gap: Users’ Perception in Nigeria. International Journal of Business and Social Research, 3(3), 154-163.

Fama, E. F., & Jensen, M. C. (1983). Separation of Ownership and Control. The Journal of Law & Economics, 26(2), 301-325.

Ferguson, C., Pinnuck, M., & Skinner, D. (2013). Audit Pricing and the Emergence of the Big 4: Evidence from Australia. University of Melbourne.

Fodio, M. I., Ibikunle, J., & Oba, V. C. (2013). Corporate Governance Mechanisms and Reported Earnings Quality in Listed Nigerian Insurance Firms. International Journal of Finance and Accounting, 2(5), 279-286.

Francis, J. R., & Wilson, E. R. (1988). Auditor Changes: A Joint Test of Theories Relating to Agency Costs and Auditor Differentiation. Accounting Review, 663-682.

Freeman, R. E. (1994). The Politics of Stakeholder Theory: Some Future Directions. Business Ethics Quarterly, 4(04), 409-421.

Gamba, M., & Goldstein, A. (2009). The Gender Dimension of Business Elites: Italian Women Directors since 1934. Journal of Modern Italian Studies, 14(2), 199-225.

Habbash, M. (2013). Earnings Management, Audit Committee Effectiveness and the Role of Blockholders Ownership: Evidence from UK Large Firms. International Journal of Business Governance and Ethics, 8(2), 155-180.

Haniffa, R., & Hudaib, M. (2006). Corporate governance structure and performance of Malaysian listed companies. Journal of Business Finance & Accounting, 33(7‐8), 1034-1062.

Hope, O. K. (2013). Large shareholders and accounting research. China Journal of Accounting Research, 6(1), 3-20.

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.

Hylton, M. O. B. (2011). Combating Moral Hazard: The Case for Rationalizing Public Employee Benefits. Ind. L. Rev., 45, 413-482.

Ikpefan, O. A., & Ojeka, S. (2013). Corporate Governance as a Tool for Curbing Bank Distress in Nigeria Deposit Money Bank: Empirical Evidence. Change and Leadership, (17), 22-38.

Jensen, M. C., & Meckling, W. H. (1976). Theory of the Firm: Managerial Behavior, Agency Costs, And Ownership Structure. Journal of Financial Economics, 3(4), 305-360.

Kao, L., Chiou, J. R., & Chen, A. (2004). The Agency Problems, Firm Performance, and Monitoring Mechanisms: The Evidence From Collateralised Shares In Taiwan. Corporate Governance: An International Review, 12(3), 389-402.

Latif, R. A., Kamardin, H., Mohd, K. N. T., & Adam, N. C. (2013). Multiple directorships, board characteristics and firm performance in Malaysia. Management, 3(2), 105-111.

Liu, C., Uchida, K., & Yang, Y. (2012). Corporate governance and firm value during the global financial crisis: Evidence from China. International Review of Financial Analysis, 21, 70-80.

Liu, J. (2012). Board monitoring, management contracting and earnings management: evidence from ASX listed companies. International Journal of Economics and Finance, 4(12), 121-136.

Mohamad-Nor, M. N., Shafie, R. &, & Wan-Hussin, W. N. (2010). Corporate governance and audit report lag in Malaysia. Asian Academy of Management Journal of Accounting and Finance, 6(2), 57–84.

Mohd-Saleh, N., Rahman, C. A., & Ridhuan, M. (2009). Ownership structure and intellectual capital performance in Malaysia. Asian Academy of Management Journal of Accounting and Finance, 5(1), 1-29.

Moorthy, M. K., Seetharaman, A., Mohamed, A. S. Z., Gopalan, M., & San, L. H. (2011). The impact of information technology on internal auditing. African Journal of Business Management, 5(9), 3523-3539.

Mustapha, M., & Che Ahmad, A. (2009). Organisational Attributes and Corporate Monitoring Mechanisms (Doctoral dissertation, Universiti Utara Malaysia).

Mustapha, M., & Che Ahmad, A. (2013). Blockholders and corporate monitoring costs: evidence from Malaysia. International Journal of Economics and Management, 7(1), 28-44.

Nasser, A. T. A., Wahid, E. A, Nazri, S. N. F. S., & Hudaib, M. (2006). Auditor-client relationship: the case of audit tenure and auditor switching in Malaysia. Managerial Auditing Journal, 21(7), 724-737.

Ogiedu, K. O., & Izedonmi, F. I. (2013). Topology of Audit Agency/Audit Techniques and the Effectiveness of the Nigerian Supreme Audit Institution. Topology, 4(6), 193-204.

Omri, W., Becuwe, A., & Mathe, J. C. (2014). Ownership structure and innovative behavior: Testing the mediatory role of board composition. Journal of Accounting in Emerging Economies, 4(2), 220-239.

Palmrose, Z. V. (1988). 1987 Competitive Manuscript Co-Winner: An analysis of auditor litigation and audit service quality. Accounting review, 55-73.

Pizzini, M., Lin, S., Vargus, M. E., & Ziegenfuss, D. E. (2014). The impact of internal audit function quality and contribution on audit delay. Auditing: A Journal of Practice & Theory, 34(1), 25-58.

Sarens, G., De Beelde, I., & Everaert, P. (2009). Internal audit: A comfort provider to the audit committee. The British Accounting Review, 41(2), 90-106.

Shleifer, A., & Vishny, R. W. (1997). A survey of corporate governance. The journal of finance, 52(2), 737-783.

Soh, D. S., & Martinov-Bennie, N. (2011). The internal audit function: Perceptions of internal audit roles, effectiveness, and evaluation. Managerial Auditing Journal, 26(7), 605-622.

Triana, M. D. C., Miller, T. L., & Trzebiatowski, T. M. (2013). The double-edged nature of board gender diversity: Diversity, firm performance, and the power of women directors as predictors of strategic change. Organization Science, 25(2), 609-632.

Uadiale, O. M. (2010). The impact of board structure on corporate financial performance in Nigeria. International Journal of Business and Management, 5(10), 155-166.

Waweru, N. (2014). Determinants of quality corporate governance in Sub-Saharan Africa: Evidence from Kenya and South Africa. Managerial Auditing Journal, 29(5), 455-485.

Willekens, M., & Achmadi, C. (2003). Pricing and supplier concentration in the private client segment of the audit market: Market power or competition? The International Journal of Accounting, 38(4), 431-455.

Zare, R., Khedri, S., & Farzanfar, F. (2013). Examining the Effect of Auditing Institution, Internal Auditing Department and Companies’ Profitability on Voluntary Information Disclosure in Tehran Stock Exchange. International Journal of Economy, Management, and Social Sciences, 2(9), 680–686.






Main Section

How to Cite

Quality-differentiated Auditors, Block-holders and Monitoring Mechanisms. (2017). Indian-Pacific Journal of Accounting and Finance, 1(1), 64-79. https://doi.org/10.52962/ipjaf.2017.1.1.7

Similar Articles

1-10 of 55

You may also start an advanced similarity search for this article.