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The effect of ownership structure and board characteristics on auditor choice: evidence from Egypt

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Abstract

In this study, we explore the influence of board characteristics and ownership structure on auditor choice decisions in less strictly legal environments, like Egypt. Using a large sample of 899 firm-year observations for the period of 2011 to 2019, we employed logistic and probit regressions. We find that larger boards, institutional ownership, and foreign ownership have a significant and positive association with appointing Big 4 auditors. In contrast, our findings indicate that CEO duality and family ownership are negatively related to Big 4 choice. Our results also show that powerful CEOs (duality) and independent directors are more likely to hire second-tier auditors instead of Big 4, whereas larger board and foreign owners are less likely to hire third-tier auditors. Our results remain robust even after taking audit committee characteristics and endogeneities issues into consideration. Taken together, our research, therefore, provides consistent evidence that different governance and institutional variables can effectively generate economic forces that can support diverging decisions regarding the auditor choice patterns to attenuate agency problems. Our results have important implications for regulators, policymakers, and auditors to understand the drivers of auditor choice and audit market structure.

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Data Availability

Data available on request from the authors.

Notes

  1. We employ the conceptualizations of strong legal environment based on research conducted by Kaufmann et al. (2003), La Porta et al. (1997, 1999, 2006) and Leuz (2010), which measure investor protection, legal enforcement, and governance indicators.

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  1. Department of Accounting, Faculty of Commerce, Mansoura University, Mansoura, Egypt

    Mohamed M. El-Dyasty & Ahmed A. Elamer

  2. Brunel Business School, Brunel University London, Kingston Lane, Uxbridge, London, UB8 3PH, UK

    Ahmed A. Elamer

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El-Dyasty, M.M., Elamer, A.A. The effect of ownership structure and board characteristics on auditor choice: evidence from Egypt. Int J Discl Gov 18, 362–377 (2021). https://doi.org/10.1057/s41310-021-00118-0

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