Antecedents of audit quality in MENA countries: The effect of firm- and country-level governance quality

This paper investigates the effect of firm- and country-level governance quality on audit quality, as measured by (i) auditor choice and (ii) audit fees. Our findings are three-fold. First, our evidence suggests that board independence is positively related to engaging a Big 4 auditor, while family shareholdings show a negative association with hiring a Big 4 auditor. Second, board size, board independence, and director shareholdings are positively related to audit fees, while government shareholdings and family shareholdings show a negative relationship with audit fees. Third, higher country-level governance quality is positively associated with hiring a Big 4 auditor and paying higher audit fees. Overall, we provide evidence that external audit quality in Middle Eastern and North African (MENA) countries is affected by firm- and country-level governance quality, which suggests that governance quality and external audit quality seem to be complements in protecting stake-holders interests through securing higher audit quality. Our results are robust to controlling for alternative measures and endogeneities. Crown Copyright (C) 2019 Published by Elsevier Inc. All rights reserved.