Corporate governance and the presence of female in the board of directors on
audit quality in Vietnam
Hoang Thi VIET HA
1, Dang Ngoc HUNG
2*, Ngo Thanh XUAN
31 Ph.Dr Hanoi University of Industry, Vietnam; E-mail: [email protected].
2 Professor, Ph.Dr, Hanoi University of Industry, Vietnam; E-mail: [email protected];
3The National Economics University, Vietnam; E-mail: [email protected].
*Corresponding Author
Received: 09.02.2022 Accepted: 18.05.2022 Published: 07.02.2023 DOI: 10.47750/QAS/24.193.35
Abstract
The purpose of this study is to determine the effect of corporate governance and the presence of females in the Board of Directors (BOD) on audit quality using the Big4 group of auditing firms. The Logarit and Probit regression models indicated that while the size of the Board of Directors had a favorable effect on audit quality, ownership by significant shareholders had a negative effect. On the other side, we did not detect any effect of the Board of Directors members' independence or concurrent Director/BOD positions on audit quality. Additionally, the presence of females on the Board of Directors directly correlates and affects the audit quality. The findings of this study may help to strengthen corporate governance further, exercise caution in gender diversity, increase audit quality, and educate users of financial statements about another perspective that should be considered when evaluating audit quality.
Keywords: Board of Directors, Female, Audit quality, Big4, Vietnam.
Introduction
Audit quality has always been a substantial issue for investors and other stakeholders in financial statements (DeAngelo, 1981). Audit quality is critical in ensuring the financial statements' reliability (Krishnan & Parsons, 2008).
However, the growth of corporate scandals and the failure of auditing firms in recent years appears to be an unavoidable result of fraudulent financial statements and a scarcity of qualified auditing firms (Adeyemi & Fagbemi, 2010), (Lennox, 1999). Enron, Worldcom, Sunbeam, and Global Crossing are only a few of the world's scandals. The Bach Tuyet Cotton Corporation and Truong Thanh Furniture Corporation auditing scandals are also noteworthy in Vietnam. The malpractices and collapse of these firms significantly eroded public trust, resulting in significant economic losses for investors and raising concerns about the decline of audit quality. The financial statement system's reliability is being questioned, the auditors' reputation is being questioned, and the corporate governance structure may be at fault due to the auditors' lack of independence and oversight by the Board of Directors (Chalaki, Didar, & Riahinezhad, 2012). ( DeFond & Francis, 2005) declared that the fallout from corporate scandals has reaffirmed the critical nature of the independent audit and its relationship to corporate governance's supervisory role. This has piqued the interest of economists and scientists conducting recent studies on audit quality.
In corporate governance, females are more likely to abstain from unethical behaviors that males typically engage in to earn large salaries and incentives (Betz, O'Connell, & Shepard, 1989). (Gul, Fung, & Jaggi, 2009) contend that females are more cautious than males when selecting accounting policy
under the same circumstances. The research result of (Krishnan & Parsons, 2008) demonstrated that organizations with a high proportion of females on the Board of Directors with concurrent responsibilities produce higher-quality financial statements and audits.
Most research on corporate governance and audit quality has been conducted in developed and developing countries (Abdullah, Ismail, & Jamaluddin, 2008), (Adeyemi & Fagbemi, 2010), (Soliman & Abdel Salam, 2012), (Makni, Kolsi, & Affes, 2012), (Hussein & MohdHanefah, 2013) . There has been little research conducted in Vietnam on the effect of corporate governance on the quality of audits and reported financial information in developing countries. In Vietnam, the amount of study on audit quality is still limited; in particular, the effect of female representation on the Board of Directors on audit quality has received little attention. The goal of this study is to investigate the effect of corporate governance and the proportion of female directors on the firm’s audit quality.
Measuring audit quality
Measuring audit quality based on input factors
(M. DeFond & Zhang, 2014) classified measurement techniques into two categories depending on their input factors: (1) the distinctive factors of auditors and (2) the audit fee. When it comes to auditors' distinctive criteria, firm size and reputation as defined by the Big N group (Big 4) are frequently utilized to determine audit quality. One of the first researchers to advocate for the group's importance is (DeAngelo, 1981),
because large and reputable auditing firms are assumed to be more competent and compelled to provide high-quality auditing services. Due to their scale, Big N auditors have access to more technology, training, and facilities (Francis & Krishnan, 1999). Auditors at Big N are considered more independent than those at smaller auditing firms because they (i) face a greater risk of losing their reputation if they are careless; (ii) are less reliant on revenue from individual customers and thus are less likely to be impacted by an individual customer; and (iii) have a higher basis of income, which exposes them to greater litigation threats (M. DeFond & Zhang, 2014).
In the second group, audit fee is used as a proxy for audit quality since audit fee is expected to measure auditors' effort and is the input factor of the auditing process and, thus, is related to audit quality. Many studies concur with this idea, contending that a high audit fee may enhance the effort to apply high-quality techniques of auditors, increase the ability to use high-quality auditors and thus increase audit quality (DeAngelo, 1981), (Chaney, Jeter, & Shivakumar, 2004).
However, other studies found a negative correlation between audit quality and audit fee, particularly for non-audit services, with the conclusion that high audit fees for auditors result in little incentive for auditors to scrutinize their customers' errors and dishonest actions, which may jeopardize auditors' independence (DeAngelo, 1981), (Chaney et al., 2004).
Measuring audit quality based on output factors
Apart from assessing audit quality through input factors, certain strategies for assessing audit quality through output factors have been popular in earlier studies. The measures can be categorized into four groups according to (DeFond & Zhang, 2014): (1) critical errors, (2) communication of auditors, (3) quality of financial statements, (4) measurement based on users’ perception. The measurement of audit quality based on the ability to recognize critical errors uses two proxies: (1) restated financial statements and (2) AAER – cases recorded by courts; they are classified as prohibited cases stipulated in Accounting and Auditing Enforcement of U.S Securities and Exchange Commission. These two proxies provide a direct measurement of audit quality since they indicate that auditors have issued an unqualified opinion inaccurately while critical errors are still present in financial statements (M. DeFond &
Zhang, 2014).
Within the set of audit quality measurements based on the financial statement quality, the measurement technique is based on the anomalous accrual model (Jones, 1991). The most widely accepted method is modified accrual variables are used as proxies for audit quality. The most appropriate proxy for audit quality is financial statement quality; higher financial statement quality equates to greater certainty of the financial accounts' authenticity and feasibility. In the group of user- perceived measurements, proxies such as earning response coefficients (ERC), the securities market's reaction to auditing events, cost of debt, and capital are frequently utilized in research. These proxy measures more accurately represent audit quality than output-based measurements and may capture net gains.
Literature review
Until recently, there have been numerous studies of the effects of corporate governance factors on audit quality by
measures such as audit firm size (Abdullah et al., 2008), (Soliman & Salam, 2012). Several important internal corporate governance aspects have been examined in prior research, including the structure of the Board of Directors, the size of the Board of Directors, and the composition of the Board of Directors (O’sullivan, 2000), (Salleh, Stewart, & Manson, 2006), Directors' and external investors' ownership (Soliman &
Abdel Salam, 2012) and the independence of the Board of Directors, concurrent positions of Executive Director/Chairman of Directors (O’sullivan, 2000), (Salleh et al., 2006), and the research findings on the links between these parameters and audit quality vary considerably among countries.
The study of (Abdullah et al., 2008) used the logistic regression method to test the effect of the system of governance on audit quality, measured by audit firm size (Big Four/Non-Big Four). The study focuses on dependent members, executive directors and their ownership, non- executive directors, financial and non-financial institution ownership, and executive directors of the firm. This study analyzes secondary data pertaining to independent Board of Directors members, independent audit commission members, ownership of executive and non-executive directors, ownership of financial and non-financial institutions, concurrent CEO positions, audit firm size, total assets, total receivables, total inventories, and total liabilities as reported in firms' annual reports. The findings reveal that board independence and ownership of non-financial entities are two critical aspects that contribute to the effectiveness of listed enterprises on Bursa Malaysia. These two aspects contribute to more objective, independent decision-making, particularly when selecting an independent auditor. Although ownership of executive and non-executive directors, as well as concurrent CEO roles, were determined to be statistically unimportant, they nevertheless exhibit some link with audit quality. Similarly, the study of (Adeyemi & Fagbemi, 2010), (Soliman & Abdel Salam, 2012) demonstrate a relationship between independence of BOD, concurrent positions of CEO, Audit Commission and audit quality while ownership of institutional investors and ownership of managers do not have a relationship with audit quality.
(Hussein & MohdHanefah, 2013) studied the practice of corporate governance and the selection of auditors before and after the Law of Corporate Governance (2007) in Malaysia.
They evaluated 300 companies between 2006 and 2008 and concluded that the corporate governance law had strengthened Malaysia's governance system. Additionally, this law has benefited the selection of auditors. Another study by (Makni et al., 2012) aims to analyze the effect of the system of corporate governance on audit quality in Tunisia, using principal components analysis (PCA) to assess audit quality (Big 4 /Non-Big 4). Following that, they examined the effect of corporate governance on audit quality. The findings indicate that board size, concurrent CEO positions, and the existence of majority shareholders all have a favorable effect on demand for higher-quality auditors. In comparison, the presence of institutional investors and the size of the firm's client base have a detrimental impact on demand for higher-quality auditors.
Additionally, the presence of independent directors on the Board of Directors, executive director ownership, and the size of audit firms' liabilities have little bearing on the selection of a competent auditor.
Research model and research hypotheses Research design
We construct the model as follows based on the literature
review and research objective as presented:
Model 1: AQ,t= β0 + β1BSi,t + + β2CDi,t + β3BIi,t + β4MSi,t + α1SIZEi,t+ α2LV i,t + α3ROA i, + εi,t (1)
To investigate the effect of the BOD as females on audit quality, we develop and build model 2 as follow:
Model 2: AQ,t= β0 + β1BSi,t + + β2CDi,t + β3BIi,t + β4MSi,t + β5GENTi,t + β6BS_GENTi,t + β7CD_GENTi,t + β8BI_GENTi,t + β9MS_GENTi,t + α1SIZEi,t+ α2LV i,t + α3ROA i, + εi,t (2)
The descriptive variables are summarized in Table 1.
Variable name Variable
code Method of measurement Sign of effect
Audit quality AQ AQ = 1, if the listed firm is audited by Big-4 AQ = 0 Non-Big-4.
Size of the Board of
Directors BS Total number of members of Board of Directors +
Concurrent positions of
CEO/Chairman of Directors CD CD = 1, if CEO is also the Chairman of
Directors, 0 otherwise. -
Independence of BOD BI Number of independent members/Total number
of BOD members +
Ownership of majority
shareholders MS Percentage of equity held by majority
shareholders in the total equity of the firm -
Firm size SIZE Log(Total assets) +
Financial leverage LV Liabilities/Total assets -
Profitability ROA Net income/Total assets +
Female in BOD GENT GENT = 1, if BOD has female members, 0
otherwise. +
Table 1: The variables of the research model
Development of research hypotheses
Studies related to the relationship between the size of the Board of Directors and the efficiency of BOD have attracted the attention of researchers like (Jensen, 1993). According to him, the BOD needs to remain small to increase the firm's operating efficiency. He argues that Boards of Directors with more than seven or eight members perform inefficiently due to the high amount of dispute. Additionally, large-scale BOD imposes a financial strain on the organization. Others believe that the Board of Directors should be sufficiently large to ensure a diverse range of expertise and experience necessary for effective supervision. (De Andres & Vallelado, 2008) also believes that Boards of Directors should be larger since this will facilitate the supervision of management and give advice to managers. A large BOD may be concerned about selecting a credible external auditor to minimize organizational problems and thus, improve awareness of public financial statements.
Therefore, in this study, we build the hypotheses as follow:
H1: There is a positive relationship between the Board size and audit quality
The concentration of power stems from the concurrent positions of Chairman of Directors, and Chief Executive Officer (CEO) may be negatively perceived since the supervising role of BOD in management is weakened because of the appearance of one person in two functions. Thereby, the latent conflicts of interest and asymmetric information between the Board of Directors and shareholders (generally referred to as involved parties) increase. This arouses the question of the independence of BOD since the concurrent positions of the CEO are a barrier to the separation of controlling power and decision-making (Daily & Dalton, 1997). However, researchers such as (Finkelstein & D'aveni, 1994) advanced contrarian arguments, arguing that concurrent positions can be advantageous for the firm since they ensure consistency among its leaders. Concurrent positions also help employees
better understand one another in the firm's working environment. In terms of argumentation, we believe that appointing a Big 4 auditor may diminish the controlling authority of this concurrent position, which may be undesirable for executive directors and the firm's president. As a result of these considerations, this study hypothesizes a negative correlation between concurrent CEO roles and audit quality.
H2: There is an inverse relationship between the concurrent position of CEO/Chairman of Directors and audit quality
According to agency theory, the independence of the Board of Directors is the most important factor in ensuring adequate supervision. (Beasley & Petroni, 2001) declared, based on agency theory, that the presence of members of the Board of Directors will boost the Board's efficacy. (Carcello, Hermanson, Neal, & Rileyr, 2002) pointed out that an independent Board of Directors is more likely to choose an independent auditing procedure that provides a higher level of control since management wants to preserve shareholders' interests and reputation and avoid any circumstance that could jeopardize their legal obligations. Therefore, an independent Board of Directors and independent auditors are two complementary systems of control. The results of (O’sullivan, 2000), (Salleh et al., 2006) demonstrate a positive relationship between the number of independent Board of Directors and audit quality.
From the previous study result, the authors also expect a positive relationship between the independence of the Board of Directors and audit quality in this study.
H3: There is a positive relationship between the independence of the Board of Directors and audit quality.
The agency theory (Abdullah et al., 2008), indicated that firms tend to use auditors of higher quality when agency problems (conflict of interest) are more pronounced.
(O’sullivan, 2000) declared that demand for higher quality auditors is positively related to the presence of majority
shareholders. This result is due to auditors' capacity to resolve agency issues. In contrast, (Copley & Douthett Jr, 2002) argues that concentrated ownership has a detrimental effect on corporate governance. We offer the following hypothesis based on the reasoning above and the context of Vietnam, which has a highly concentrated ownership structure, listed enterprises emerging from private firms, and family firms.
H4: There is a negative correlation between majority shareholder ownership and audit quality.
Gender studies typically focus only on females in senior positions within an organization, such as members of the Board of Directors or management. (Offermann & Armitage, 1993) feel that males and females behave differently in the same position because they are influenced by gender, culture, and societal standards. As a result, girls and guys in the same position exhibit significantly different behavior. (Betz et al., 1989) believe that females are more cautious, risk-averse, and less likely to accept unethical behaviors than males; therefore, if females serve on the Board of Directors, they will oversee the Board of management more effectively, mitigating conflicts of interest between shareholders and the Board of management caused by appointment. (Adams & Ferreira, 2009) Females participate actively in BOD meetings, which strengthens the BOD's supervisory responsibility. (Fondas & Sassalos, 2000) contend that as a result of the differences in physical characteristics between males and females, they argue that gender diversity improves supervisory behavior of managers, so increasing the independence of the Board of Directors, which helps the firm produce fresh ideas and inventiveness.
The following hypotheses are advanced:
H5: The presence of females in BOD has a positive relationship with audit quality
H6: The interaction of females in BOD with corporate governance variables has an effect on audit quality.
In addition, based on previous studies of the effect of factors including firm size, financial leverage, profitability on audit quality as proposed by (Abbott, Parker, & Peters, 2004), in the research model, we consider these variables as control variables.
Research participants
This study uses secondary data, namely panel data derived from annually audited and publicly available financial statements in the Vietnamese securities market. The sample is drawn from non-financial enterprises that operated between 2009 and 2020.
Data collection tools
Study is to determine the effect of corporate governance and the presence of females in the Board of Directors (BOD) on audit quality using the Big4 group of auditing firms on the Vietnam Stock Exchange in the period 2009-2020 with 7846 observations. The data of these companies is collected in the financial statements of enterprises and the dataset of Vietstock, as well as aggregated from the data published on some reputable securities websites such as cafef.vn or cophieu68.com. The original data will be aggregated and recalculated in the same way of determining variables, in which some variables will be regressed to get the remainder and initialize the corresponding new variable through Stata 14.0 software.
Data analysis
The study uses methodologies of Logit and Probit are utilized to analyze audit quality as a dependent and binomial variable.
Research results and discussion
Table 2 presents descriptive statistics about the variables used in the study, including average value, standard deviation, the minimum and maximum value of all variables. The results presented in this table demonstrate that audit quality (measured by Big 4) has an average value of 0.255, which means that, on average, about 25.5% of listed firms in the Vietnam securities market are audited by Big 4 audit firms, and 74.5% of the firms in the sample are audited by other audit firms. This proportion is relatively low compared to other countries in the world. It can be seen that the majority of listed firms in Vietnam do not pay much attention to assessing the audit services of Big 4. However, according to the general viewpoint, audited financial statements of Big 4 are more credible, the results and process of Big 4 are more reputable.
With regard to the size of the Board of Directors (BS), the average value is 5.437, with the minimum and maximum values being 3 and 18, respectively. At the same time, firms with a CEO holding a concurrent position of Chairman of Director (CD) account for 21.9%. The proportion of independent Board members (BI) averages at 31.5%, and majority shareholder members of BOD account for 11.6%.
Besides, the number of firms with female BOD account for 56.4%; therefore, 44.6% of firms whose BOD consists of only male members.
Variable Obs Mean Std. Dev. Min Max
AQ 7,846 0.255 0.436 0 1
BS 7,846 5.437 1.369 3 18
CD 7,846 0.219 0.414 0 1
BI 7,846 0.315 0.175 0 1
MS 7,846 0.116 0.173 0 0.833
SIZE 7,846 27.067 1.561 20.720 33.677
LV 7,846 0.496 0.226 0.000 2.031
ROA 7,846 0.062 0.082 -1.693 0.784
GENT 7,846 0.564 0.496 0 1
Table 2: Descriptive statistics
Table 3 presents the relationship between the variables in the model, reflected in the correlation matrix, demonstrating that four independent variables denoting the ownership structure and features of Board of Directors, including BS – the size of Board of Directors; CD – concurrent position of CEO; BI – the Board of Directors' independence and MS – ownership of majority shareholders all have correlations and statistical significance with dependent variable AQ – audit quality (measured by the size of audit firms) since all the Sig. values are < 0.05. The variables having positive correlations with audit quality and the level of correlation are arranged in descending
order of size of Board of Directors (r = 0.2163), independence of BOD (r = 0.1072). The variables having a negative correlation with the dependent variable of audit quality are the ownership of majority shareholders (r = -0.1825) and the concurrent position of CEO with the correlation coefficient (r = - 0.0648), which coincides with the expected sign of effect as initially hypothesized. Furthermore, other financial controlling variables used in the research model, such as firm size, financial leverage, and ROA, have statistically significant and positive correlations with the dependent variable.
AQ BS CD BI MS SIZE LV ROA
AQ 1
BS 0.2163* 1
CD -0.0648* -0.0526* 1
BI 0.1072* 0.1614* -0.3149* 1
MS -0.1825* -0.1051* 0.2045* -0.2134* 1
SIZE 0.4597* 0.2659* -0.0450* 0.0460* -0.1456* 1
LV 0.0379* -0.0199 0.0059 -0.1310* 0.0758* 0.3194* 1
ROA 0.0611* 0.0830* -0.0427* 0.0401* -0.1051* -0.0618* -0.3790* 1 t statistics in brackets * p<0.05
Table 3: Correlation matrix
The results of Table 4, based on the methods of Logit and Probit, indicate that among the four independent variables, there are two statistically significant factors, including the size of BOD (BS) and ownership of majority shareholders (MS).
With regard to controlling variables, firm size (SIZE) and financial leverage (LV) have statistically significant relationships with the dependent variable Audit quality (AQ) since all Sig. values are lower than the significance level = 0.05.
Size of Board of Directors (BS): The research results
indicate that the BS variable has a positive regression coefficient and is statistically significant, which means that size of BOD has a positive relationship with audit quality; therefore, hypothesis H1 is accepted. This result concurs with that of (De Andres & Vallelado, 2008), but is opposite to the results of (Chalaki et al., 2012). Boards of Directors with larger sizes in Vietnamese listed firms have fulfilled the responsibility of financial supervision. Their size enables them to manage and maintain a stable atmosphere and conducive conditions for high-quality auditing.
Logit Probit
REM PA REM PA
BS 0.672*** 0.0625*** 0.429*** 0.0372***
[3.69] [3.07] [6.25] [3.05]
CD 0.695 0.0851 0.326 0.0503
[0.99] [1.33] [1.44] [1.33]
BI 0.216 0.134 0.85 0.0751
[0.13] [0.82] [1.54] [0.78]
MS -5.982*** -1.067*** -5.305*** -0.593***
[-2.75] [-3.20] [-7.72] [-3.15]
SIZE 1.022*** 0.0492*** 0.667*** 0.0288***
[6.55] [4.84] [11.00] [4.84]
LV -2.759*** -0.160*** -1.320*** -0.0924***
[-3.09] [-2.83] [-3.65] [-2.80]
ROA -1.829 -0.112 -0.27 -0.068
[-0.95] [-0.96] [-0.33] [-1.00]
_cons -41.77*** -2.715*** -22.54*** -1.621***
[-9.50] [-8.26] [-13.61] [-8.48]
N 7846 7846 7846 7846
t statistics in brackets * p<0.1, ** p<0.05, *** p<0.01 Table 4: Regression results of model 1
Concurrent positions of CEO/Chairman of Directors (CD):
Although the correlation coefficient is positive but not statistically significant, the CD variable is expected to have a negative association with audit quality. This result is not compatible with many previous studies such as Soliman and (Makni et al., 2012). It should be noted that the concurrent positions of the CEO lead to concentration of power, and this concentration and overlapping of managing and controlling roles are likely to result in agency problems. Therefore, in theory, demand for higher audit quality is expected to audit financial statements and minimize agency problems effectively.
The independence of the Board of Directors (BI): The result of the relationships between the independence of the Board of Directors (BI) and audit quality (AQ) was not the same as initial expectation. The correlation is positive but is not statistically significant. This result indicates that independent members of the Board of Directors are expected to stimulate objectivity, leading to clearer transactions of the firm; they encourage the appointment of higher quality auditors to assure investors that financial statements are presented honestly, credibly, and also to protect their reputation. This result is not compatible with that of (Soliman & Abdel Salam, 2012) but also not suitable with (O’sullivan, 2000), (Salleh et al., 2006), (Hung & Van, 2020), (Ngoc Hung; Dang & Ngo, 2020), (Ngoc Hung Dang &
Tran, 2020). The results of these studies advocate that independent members are regarded as competent controllers of the credibility of financial statements and the selection of a high-quality auditor.
Ownership of majority shareholders in BOD (MS): The result from Table 4 indicates that ownership of majority
shareholders (MS) has a negative relationship with audit quality and is statistically significant. This means that majority shareholders do not favor selecting a high-quality auditor to control managers to increase information quality effectively.
This result concurs with initial expectations, this result agrees with the results of the study of (Copley & Douthett Jr, 2002), but is in contrast with the results of the study of (O’sullivan, 2000). This result is attributable to the nature of concentrated ownership in listed firms in Vietnam since most listed firms in the securities market are small-scale, originating from family firms in which the owners also have controlling power.
Females in Board of Directors: Table 5 summarizes the results of model 2 when the effect of females in the BOD on audit quality is included using the dummy variable GENT (representing BODs with female members). The findings reveal that this factor has a statistically significant negative effect on audit quality. This finding contradicts the basic hypothesis H5, this result is also consistent with the study of (Adams &
Ferreira, 2009), (Fondas & Sassalos, 2000). Additionally, while the independence of BOD members (BI) has a negative association with audit quality (AQ), the interactive variable BI GENT has a positive and statistically significant link with audit quality. As a result, it can be seen that female representation on the Board of Directors has some effect on audit quality, but not as expected. This could be because the system is designed, so that female representation on the Board of Directors does not reflect certain roles in managing and enhancing the quality of financial statements when selecting audit firms.
Logit Probit
REM PA REM PA
BS 0.476 0.0525 0.429*** 0.0306
[1.47] [1.59] [3.73] [1.55]
CD 0.208 0.0585 -0.111 0.0354
[0.21] [0.64] [-0.33] [0.66]
BI -4.113* -0.494** -2.037*** -0.295**
[-1.65] [-2.15] [-2.77] [-2.17]
MS -4.77 -1.183** -4.759*** -0.657**
[-1.06] [-2.54] [-4.65] [-2.50]
GENT -8.270** -1.032*** -4.300*** -0.607***
[-2.57] [-3.36] [-4.37] [-3.34]
BS_GENT 0.231 -0.00194 -0.0264 0.000387
[0.52] [-0.05] [-0.19] [0.02]
CD_GENT 1.397 0.062 0.736* 0.0334
[1.05] [0.52] [1.67] [0.47]
BI_GENT 10.24*** 1.477*** 5.945*** 0.856***
[3.32] [4.70] [5.73] [4.64]
MS_GENT -5.311 0.0505 -0.881 0.038
[-0.95] [0.11] [-0.62] [0.14]
SIZE 1.022*** 0.0508*** 0.660*** 0.0297***
[5.39] [4.94] [10.99] [4.93]
LV -2.693*** -0.154*** -1.260*** -0.0886***
[-2.94] [-2.69] [-3.57] [-2.65]
ROA -1.903 -0.138 -0.331 -0.0818
[-0.98] [-1.16] [-0.41] [-1.18]
_cons -39.09*** -2.263*** -20.19*** -1.349***
[-7.43] [-6.03] [-11.91] [-6.13]
N 7846 7846 7846 7846
t statistics in brackets * p<0.1, ** p<0.05, *** p<0.01
Table 5: Regression results of model 2
The firm size (SIZE) variable exhibits a statistically significant positive connection with audit quality, this result is similar (Abbott, Parker, & Peters, 2004). In comparison, financial leverage shows a negative and statistically significant link with audit quality, although profitability has no effect on audit quality. The association between firm size and audit quality is positive since larger organizations have more resources for better systems and enough internal control. Most listed firms in the Vietnam securities market are medium and small-size firms; therefore, selecting high-quality audit firms is difficult. This also explains the low proportion of quality audit firms (measured by Big 4); only large firms and firms with a need to access international financial markets use the services of Big 4 audit firms. Firms with high financial leverage have a lower ability to select high-quality auditors. The results do not demonstrate empirical evidence of the correlation between ROA and audit quality.
Conclusion and implications
The main objective of this study is to examine the effect of internal corporate governance factors and the influence of females in BOD on the audit quality of listed firms in the Vietnam securities market. When analyzing the role of female members of the Board of Directors, this factor has an effect on audit quality, and, contrary to expectations, the presence of female members of the Board of Directors and the selection of Big 4 audit firms have a negative association. Firm size (as defined by the Big 4 group of audit firms) is utilized as a proxy variable for audit quality in this study. The characteristics of corporate governance examined in this study are limited to variables relating to the Board of Directors (including the size of the BOD, the CEO's concurrent positions, and the BOD's independence) and the ownership of majority shareholders in the BOD. The research findings indicate that BOD size has a beneficial effect on audit quality; the research findings also indicate that firms tend to reduce their reliance on Big 4 audit services when majority shareholders in BOD owners increase.
These findings enable the author to provide recommendations to strengthen the influence of corporate governance considerations in selecting high-quality audit firms in Vietnam's listed corporations.
Based on the research findings, we recommend corporate governance elements associated with audit quality to strengthen the BOD's oversight role with respect to financial statements and the audit process, hence improving the audit quality of publicly traded companies.
As required, a balance of managerial and independent members must be maintained, with at least 1/3 of the Board of Directors being independent. Firms must recognize the critical role of independent directors in an independent Board of Directors and devote significant resources to recruiting high- quality, independent directors. Members of the BOD must have experience and skill in corporate governance, or at the very least financial accounting expertise. An independent member of the Board of Directors with extensive knowledge will guide in order to encourage the Board of management to take action to strengthen internal control and manage risks associated with the process of preparing, presenting, and publicizing financial statements.
Female diversification on the BOD is beneficial, as it promotes balance and a firm foundation for corporate operation; females typically participate actively in BOD meetings, which helps to strengthen the overseeing role of the
BOD. However, the selection of female members of the BOD should be based on merit, not on the structure and assurance of the required proportion of female members.
The study uses Big Four/Non-Big Four dummy variables as a proxy for audit quality. Such a variable does not seem very convenient to accurately assess audit quality because the concept of audit quality depends on many factors. Therefore, future research may try to use other audit quality measures with higher reliability such as audit opinions, audit fees, etc.
However, listed companies in Vietnam does not disclose information on audit fees and it is the lack of information on audit fees that imposes a limit on the measurement of audit quality in Vietnam.
Reference
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