Spillover effects of internal audit effectiveness among commercial banks

Abstract

This study explores the multifaceted landscape of factors influencing the effectiveness of internal audit within the context of Vietnamese commercial banks. While a plethora of literature exists on the determinants of internal audit effectiveness, an unexplored dimension is the examination of spillover effects amongst companies operating within the same industry. This research addresses this gap by investigating not only the factors that impact the effectiveness of internal audit in Vietnamese commercial banks but also the inter-bank spillover effects of such effectiveness. Utilizing data obtained from 24 commercial banks listed on the Vietnam Stock Exchange and Vietnam Upcom (The Unlisted Public Company Market), we employ a Bayesian spatial regression model (a robust analytical tool) to conduct comprehensive analyses of the interrelationships and co-movements of internal audit effectiveness across these banks. Our findings offer empirical support for the positive effects of key determinants, namely, the "Competence of the IA Department," "IA Independence," and "Management Training Ground," on the effectiveness of internal audit in Vietnamese commercial banks. Notably, our results also validate the significant positive inter-bank spillover effect of internal audit effectiveness. This underscores the importance for banks to collectively prioritize measures aimed at enhancing the quality of internal audit, including the establishment of a joint internal audit association and the organization of collaborative training initiatives for internal audit personnel.