Does ownership structure affect audit quality in countries characterized by a weak legal protection of the shareholders?

Abstract

PurposeThis study aims to investigate the effect of the ownership structure types on the indicators of the external audit quality, in the light of the weak legal protection of the shareholders.Design/methodology/approachThis study used the panel data of 94 listed Jordanian companies from 2009–2018 and the fixed-effect method.FindingsThe results revealed a significant relationship between the directors’ ownership, family and institutional ownership with the audit quality. By contrast, the managerial ownership had an insignificant influence on audit quality.Research limitations/implicationsThe results show the important role played by the directors’ and institutions’ ownership in ensuring the audit quality in Jordan. The results have implications for the policymakers in Jordan, to encourage and support the participation of such types of the investors and provide an effective monitoring over other types of ownership in the Jordanian capital markets.Social implicationsThis study suggests that the ownership structures are an essential and effective determinants of the external audit quality, which ultimately affects the performance and financial statements.Originality/valueThese results are consistent with prior studies, which have indicated a significant relation between ownership structure and the demand of the audit quality, even in a setting where legal protection of the shareholders plays essentially no role. To the best knowledge of the researchers, this study is one of the few studies that separates the ownership by the directors into two separate types. Further, this is the first study that used several indicators to measure the audit quality at the same time.