Entrenchment Effect and Corporate Governance: Audit Quality Analysis

Abstract

This study aims to examine the effect of entrenchment effect and corporate governance on audit quality as measured by accrual quality. This study uses manufacturing companies listed on the Indonesia Stock Exchange from 2018-2020 as a sample. The final sample of this study was 39 companies with a total of 117 observations. This study uses multiple linear regression as the method of analysis. The results of this study provide evidence that the entrenchment effect has a positive effect on audit quality. The results also show that when the company faces a high entrenchment effect from the controlling shareholder, the company still appoints a high-quality auditor to reduce agency conflict and to maintain the company’s reputation. This study also shows that corporate governance has a negative effect on audit quality. The findings of this study indicate that the controlling shareholder will choose a public accounting firm with high audit quality. This is done with the aim of giving a signal to non-controlling shareholders that the controlling shareholders have concern for them.