The Effect of Ownership Structure and Audit Quality on Firm Performance

Dramani Angsoyiri

doi:10.11594/ijmaber.02.02.01

Abstract

The study examined the effect of ownership structure and audit quality on firm performance of listed companies in Ghana. The research employed a quantitative research approach; secondary data was extracted from various annual reports and financial statements of the selected companies. The target population was all 42 listed companies on the Ghana Stock Exchange. The sample size was 20 companies selected from all industries. The study period was 2013-2018 resulted in 160 firm-yearly empirical observations. The study used return on asset (ROA) and return on equity (ROE) as the performance measure. Ownership structure was measured using managerial ownership and institutional ownership, audit quality was also measured with the auditor’s reputation, audit committee size and audit committee independence. The control variables used were board size and firm size. The researcher found a weak positive correlation between institutional and managerial ownership and firm performance. Moreover, there was a positive effect of audit quality on firm performance. It implies that the engagement of the services of the Big 4 audit firms has an incremental effect on firm performance. Audit committee size posited a positive effect on firm performance whereas audit committee independence was seen to harm firm performance. Similarly, board independence showed a positive effect on ROE and a negative effect on ROA. Board size, however, indicated a positive effect on firm performance. The researcher recommended the pressing need of diversifying sharehold-ings in firms as a sweetener to attract more skills and expertise among shareholders that can be tapped to enhance the performance of firms. However, managers should be protected from unnecessary shareholding meddling.

Highlights

The ownership structure of every business or company is viewed as a structured and productive solution to the sharing of risk and incentive problems (Thomsen and Pedersen, 2000). Singh and Davidson (2003) opined that the firm ownership framework is/are considered among the key internal mechanisms and structures of corporate governance and corporate finance
The p-value and the t-statistics of the individual variables which measures how significant each independent variable affect the return on asset (ROA) statistically all indicates that INSOWN, MANOWN, AUDQ, ACSIZE, ACIND, BSIZE, FSIZE are all not statistically significant individually in affecting ROA
The p-value and the t-statistics of the individual variables which measures how significant each independent variable affect the return on equity (ROE) statistically all indicates that INSOWN, MANOWN, AUDQ, ACSIZE, ACIND, BSIZE, are all not statistically significant individually in affecting ROE, except for FSIZE with a p-value of 0.097

Summary

Introduction

The ownership structure of every business or company is viewed as a structured and productive solution to the sharing of risk and incentive problems (Thomsen and Pedersen, 2000). Singh and Davidson (2003) opined that the firm ownership framework is/are considered among the key internal mechanisms and structures of corporate governance and corporate finance. Their research considers earnings per share and share price as performance indicators and categorizes ownership structure into insider ownership, concentrated ownership, dominant ownership and foreign ownership They employ ordinary least squares to examine the association between the different variables. The results of their findings prove that there is no substantial correlation between concentrated ownership, foreign ownership, dominant ownership structures and the overall performance of a company. Their research suggests that corporate administrative bodies should reconsider foreign ownership, concentrated ownership, dominant ownership structures as governance mechanisms since they do not have any significant relationship on the overall performance of a company They again suggest that there should be monitoring by shareholders on their firms’ management activities in the situation where the firm is characterized by insider ownership as the performance of companies is negatively affected by insider ownership. The study reveals that there is a positive connection between the general performance of a firm and institutional ownership structure but it was not substantial

Findings

Methods

Conclusion