The effect of the pattern of ownership structure and the characteristics of the Board of Directors on the quality of the external audit - an applied study on companies listed on the Saudi Stock Exchange

Document Type : Original Article

Author

Accounting Department Al-Jazeera Higher Institute for Computer And management information systems College of Business Administration - Shaqra University, Saudi Arabia

Abstract

Purpose: The aim of this study is to analyze the effect of the relationship between the ownership structure pattern and the characteristics of the board of directors on the audit quality, by applying it to non-financial joint stock companies in Saudi Stock Exchange.
Design &Methodology: The study uses the content analysis to examine the annual reports of a sample of (106) registered companies in Saudi Stock Exchange between the year (2014 - 2018), with a total of (530 (observations, to make a model for measuring the impact of the ownership structure pattern and the characteristics of the board of directors on the audit quality.
Findings: With respect to the ownership structure pattern, the results of thestudy indicate that there is a significant correlation between the institutional ownership and audit quality and there is a negative relationship between family ownership and audit quality. Whereas there is no relationship between each of themajor shareholder’s ownership,administrative ownership,dispersion ownership and the audit quality. With regard to the characteristics of the board of directors, the study has shown that there is no effect for both the size of the board of directors, and the independence of the Board of directors on audit quality. Moreover, the duality of the executive officer duties and the audit quality have positive effect. According to these findings, it is necessary to take into consideration the activating of the supervisory role of Saudi capital market authority to verify that the companies are committed to disclosing ownership structure information, which leads to the improvement of disclosure quality and the reduction of information asymmetry. It is also necessary to verify the commitmentofcompaniestothe governance mechanisms and the characteristics ofthe board of directors, as this has a positive impact on the audit quality.
Originality/Value: This study contributes to accounting literature by analyzing the expected effect of ownership structure and the characteristics of the Board of directors on audit quality in an integrated way. As well as measuring the effect of this relation to the level of business in Saudi business environment.

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