Abstract
Many companies are closing down after the global economic melt-down of 2008 that involved ERON. The biggest problem for such business failures as identified by practitioners and academicians is information asymmetry existing in the relationship of the managements with the shareholders. This study seeks to investigate how monitoring mechanisms influence the block-holders in 111 Nigerian non-financial listed companies to resolve this problem. The study also investigates the mediating effect of the quality-differentiated auditors on the relationship between block-holders and monitoring mechanisms. The investigation adopted quantitative analysis using Stata to test related hypotheses. The findings indicate that the block-holders significantly influence monitoring mechanisms. The results also reveal that quality-differentiated auditors positively affect monitoring mechanisms and that it significantly explains the relationship between block-holders and monitoring mechanisms. Thus, this paper adds to knowledge on the subject of monitoring mechanisms and its scopes (directorship, internal and external auditing). These findings have policy implications for the board of directors to execute their monitoring responsibilities and guide them in external audit type selection. The findings also provide policy suggestions for both the internal and external auditors. The results can also be beneficial for the regulatory agencies and government to further review the guidelines for corporate governance. The paper adds to knowledge in Sub-Saharan Africa, especially, Nigeria by examining a mediating effect to expose the relationship between block-holders and monitoring mechanisms, which are not clear or exist in the previous studies.
Highlights
Investors are finding it more necessary to monitor the managements to ensure that their interests are well protected
The variables in this study are free from collinearity and multicollinearity as all the values are less than 0.9, the variance inflation factors (VIF) is 1.01, which is below the threshold of 5 and tolerance are more than 0.2
The study adds to the literature on block ownership, agency conflicts, monitoring mechanisms and quality-differentiated auditors
Summary
Investors are finding it more necessary to monitor the managements to ensure that their interests are well protected. The investors are the principals while management of the companies is the agents (Jensen & Meckling, 1976). Agency theory clarifies the problems existing between the two parties (Fama & Jensen, 1983). Shareholders monitor their agents adopting monitoring mechanisms (Huson, Parrino, & Starks, 2001) that allow maximum transparency and accountability to limit the agency problems (Jensen & Meckling, 1976; Kao, Chiou, & Chen 2004). Monitoring mechanisms help to align the interests of the managers and the shareholders (Azim, 2012) and induce management to maintain shareholders’ interests (Shleifer & Vishny, 1997)
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