The beneficial effect of shareholder participation in general meetings: Evidence in the context of audit quality

Ameneh Bazrafshan,Vajiheh Bazrafshan,Akram Banaiy

doi:10.7819/rbgn.v23i1.4096

Ameneh Bazrafshan, Vajiheh Bazrafshan + Show 1 more

Open Access

https://doi.org/10.7819/rbgn.v23i1.4096

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Abstract

Purpose – This paper aims to investigate how shareholder participation in general meetings (SPGM) affects audit quality Design/methodology/approach – We measure SPGM as the percentage of the ownership represented by the shareholders who attend the general meeting. We measure audit quality by auditor industry specialization, audit firm size, and auditor fees. In order to investigate the relationship between SPGM and audit quality, we use a sample of 576 firm-years from Iran’s capital market between 2012 and 2018 and employ multivariate regression analysis. Findings – The findings show that, in general, there is an insignificant relationship between SPGM and audit quality. However, we reveal that there is a positive and significant association between the presence of institutional shareholders in general meetings and audit quality. Furthermore, for the companies with a high presence of institutional shareholders in their general meetings, there is a significant and positive relationship between the participation of other shareholders in the general meetings and audit quality. Our findings are robust in regards to a variety of additional tests. Originality/value – Collectively, the findings reveal that the impact of SPGM on audit quality is conditional to the presence of institutional shareholders in general meetings. The findings provide further insights among the mixed evidence on the beneficial effects of SPGM.

Highlights

Shareholder participation in general meetings (SPGM) is an important part of corporate governance in publicly-traded companies (e.g., Apostolides, 2010; Bebchuk, 2005; Krishnan & Ye, 2005)
Collectively, the findings reveal that the impact of SPGM on audit quality is conditional to the presence of institutional shareholders in general meetings
presence of institutional shareholders in general meetings (PISGM) is about 23%, indicating that the percentage of the ownership represented by the institutional shareholders who attend the general meeting is 23%

Summary

Introduction

Shareholder participation in general meetings (SPGM) is an important part of corporate governance in publicly-traded companies (e.g., Apostolides, 2010; Bebchuk, 2005; Krishnan & Ye, 2005). Higher SPGM provides shareholders with a better opportunity to hold management accountable and may prevent managers from engaging in opportunistic behaviors (e.g., Mayhew & Pike, 2004). Modern companies are characterized by the separation of ownership from management This separation leads to a further need for the practical mechanisms of corporate governance to ensure that resources are efficiently and effectively used (Velury, Reisch, & O’Reilly, 2003). Apostolides and Boden (2005) stress the importance of general meetings as a corporate governance mechanism This is because, first, general meetings are forums where shareholders are informed about substantial company matters and they have an opportunity to exercise their control over managers and to participate in the diverse decision-making processes. The meetings provide an instrument of checks and balances, where managers have to explain themselves to shareholders and where the latter may take corrective actions by exercising their ownership rights (Beuthel, 2006; Daniel, 2010; Stratling, 2003)

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