Corporate governance structures and their implications on audit quality: UK evidence

Abstract

This study evaluates the impact of corporate governance variables on audit quality in the United Kingdom (UK). The aim of the study is to ascertain the influence of board size, chief executive officer’s (CEO) dual role, and audit committee independence on audit quality. Two different proxies of audit quality were employed: the level of discretionary accruals and auditor size. The sample comprised 1,306 firms listed on the FTSE All Share Index for a long period covering 2012–2022. Different methodologies were employed to reach conclusions. Panel least squares and logit regressions provided robust results. Specifically, the results imply a positive relationship between board size, audit committee independence, and audit quality. Interestingly, CEO duality does not seem to alleviate audit quality levels. Contrary to many research findings and regulatory concerns, the CEO’s dual role is positively related to both audit quality proxies. All independent variables in the panel least squares model are statistically significant at conventional significance levels. The logit model provides unequivocal support to the beneficial role of board size on audit quality, at all levels of significance (p-value 0.00). The UK’s “comply or explain” regime offers a unique setting for future research on several corporate governance variables.