Ownership structure significantly impacts audit quality during economic uncertainty
Different ownership structures exhibit varying relationships with audit quality, particularly in response to economic crises, with block-holders, foreign, and institutional owners demanding higher audit quality.
International Journal of Law and Management · 2023
Key Findings
- 01COVID-19 amplified the association between block-holder, foreign, and institutional ownership and audit quality.
- 02Family ownership did not show a significant relationship with audit quality in the context of the COVID-19 crisis.
Application
Design takeaway
When designing financial reporting and governance systems, consider that ownership type is a significant factor influencing the perceived need for and investment in audit quality, especially during times of economic stress.
How to apply
When advising companies on corporate governance or financial risk management, analyze the ownership structure to anticipate potential variations in the demand for audit services and the importance of financial transparency.
Project actions
- 01Consider how different stakeholder groups (analogous to ownership types) might influence the design requirements for a product or service.
- 02Investigate if external pressures (like economic downturns) change user needs or expectations for a design.
Method & Evidence
Variables
Strengths & Limitations
Strengths
- +Large sample size covering a significant time period.
- +Empirical evidence from a specific emerging market context.
Limitations
The findings are specific to Jordan and may not apply universally. Audit fees are a proxy for quality and might not fully represent the actual quality of the audit.
Reliability & validity
The use of regression analysis with firm-clustered standard errors enhances the reliability of the findings. Validity is supported by the large dataset and the examination of a significant economic event, though the proxy for audit quality might limit construct validity.
Think critically
To what extent can the findings regarding audit quality be generalized to other forms of quality assurance or compliance in business operations?
Design Principles
"The demand for assurance services is contingent upon ownership structure and external economic conditions."
Understanding how ownership influences the demand for and perception of audit quality is crucial for businesses operating in volatile markets. This insight can inform corporate governance strategies, investor relations, and regulatory approaches to ensure financial transparency and accountability.
What This Means for Your Design
This study found that during tough economic times like the COVID-19 pandemic, companies owned by large shareholders, foreign investors, or institutions tend to pay more for better audits. This is because they need reliable financial information for their decisions. However, family-owned businesses didn't show this same pattern, perhaps because they are more agile in crises.
How to use in your project
- 1.Reference this study when discussing how stakeholder needs (represented by ownership types) can influence the design and implementation of financial controls or reporting systems in a commercial context.
Add to My Project
Quick Cite
(2023). Evaluation of ownership structure and audit-quality in the wake of the Covid-19 crisis: empirical evidence from Jordan. International Journal of Law and Management. https://doi.org/10.1108/ijlma-03-2023-0035 Retrieved from https://designdex.org/study/17b6bff3-99f8-4ba4-8548-c38b3ca16719/ownership-structure-significantly-impacts-audit-quality-during-economic-uncertainty
Paragraph starter
This research highlights that during periods of economic instability, such as the COVID-19 crisis, the influence of ownership structure on the demand for audit quality becomes more pronounced. Specifically, block-holder, foreign, and institutional ownerships are associated with a greater need for high-quality audit services, likely to mitigate agency conflicts and inform strategic decisions. This underscores the importance of considering stakeholder composition when designing governance and financial oversight mechanisms in commercial ventures.
Source
International Journal of Law and Management
Evaluation of ownership structure and audit-quality in the wake of the Covid-19 crisis: empirical evidence from Jordan
journal · 2023
View sourceQuestions about this research
- What does the research say about ownership structure significantly impacts audit quality during economic uncertainty?
- When designing financial reporting and governance systems, consider that ownership type is a significant factor influencing the perceived need for and investment in audit quality, especially during times of economic stress. Evidence: International Journal of Law and Management (2023).
- Why does "Ownership structure significantly impacts audit quality during economic uncertainty" matter for design?
- Understanding how ownership influences the demand for and perception of audit quality is crucial for businesses operating in volatile markets. This insight can inform corporate governance strategies, investor relations, and regulatory approaches to ensure financial transparency and accountability.
- How can designers apply this research?
- When designing financial reporting and governance systems, consider that ownership type is a significant factor influencing the perceived need for and investment in audit quality, especially during times of economic stress.
- What were the main findings?
- COVID-19 amplified the association between block-holder, foreign, and institutional ownership and audit quality.. Family ownership did not show a significant relationship with audit quality in the context of the COVID-19 crisis.
- What research method was used?
- Quantitative analysis using regression modeling. with 3,200 firm-year observations.
- How strong is the evidence?
- Evidence strength is rated Strong effect, based on a 2023 journal from International Journal of Law and Management.
- What should I do differently in my next project?
- When advising companies on corporate governance or financial risk management, analyze the ownership structure to anticipate potential variations in the demand for audit services and the importance of financial transparency.
- What are the limitations?
- The study is specific to the Jordanian context and may not be directly generalizable to all global markets. The proxy for audit quality (audit fees) might not capture all nuances of audit quality.
- Is there evidence that audit quality affects design outcomes?
- During the COVID-19 crisis, companies with block-holder, foreign, and institutional owners showed a stronger demand for higher quality audits, likely to aid decision-making and manage agency conflicts. Family-owned businesses, however, did not exhibit this same trend, possibly due to quicker crisis response and lower p Source: International Journal of Law and Management (2023).
- Where does this ownership structure research apply?
- Corporate finance and auditing within the Jordanian business environment, with implications for other Middle Eastern economies. It sits within commercial production research on designdex.org.
Related research topics
audit quality design research · evidence on audit quality · does audit quality improve design outcomes · ownership structure studies for designers · audit quality and ownership structure findings · commercial production research evidence