Board co-option and audit quality: Evidence from US

This study investigates the impact of board co-option on audit quality, a vital dimension of corporate governance that has received limited attention. Using a dataset of 9605 firm-year observations from U.S. listed firms, we examine the extent to which co-opted directors aligned with CEOs compromise audit quality, measured through BIG4 auditor selection and audit fees. Results show that board co-option significantly reduces audit quality, a finding robust to alternative co-option measures, propensity score matching, and IV-Probit models. Notably, the presence of a CSR committee and stronger governance scores mitigate these negative effects – highlighting their significant role. These findings accentuate the need for regulatory reforms to strengthen board independence and institutionalize CSR committees, enhancing governance practices and accountability. • The first study examines the impact of board co-option on audit quality. • We use a probit regression model by following the dichotomous nature of our dependent variable. • Firms with more board co-option are more prone to compromise the quality audit. • This association is weakening in the presence of strong governance and CSR committees. • If a firm has high analyst coverage, it will ensure the quality of internal as well as external governance.

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Publication Details

Journal
International Review of Financial Analysis
Published
2025-03-14
DOI
https://doi.org/10.1016/j.irfa.2025.104123
Citations
3
Primary Topic
Corporate Finance and Governance
Type
article
Field-Weighted Citation Impact
11.73
Controls
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article

Board co-option and audit quality: Evidence from US

Samar S. Alharbi, Najoua Elommal, Umer Iqbal, Asif Saeed
3 citations
International Review of Financial Analysis
Corporate Finance and Governance
11.73
article

Board co-option and audit quality: Evidence from US

Samar S. Alharbi, Najoua Elommal, Umer Iqbal, Asif Saeed
article en
3 citations

Abstract

This study investigates the impact of board co-option on audit quality, a vital dimension of corporate governance that has received limited attention. Using a dataset of 9605 firm-year observations from U.S. listed firms, we examine the extent to which co-opted directors aligned with CEOs compromise audit quality, measured through BIG4 auditor selection and audit fees. Results show that board co-option significantly reduces audit quality, a finding robust to alternative co-option measures, propensity score matching, and IV-Probit models. Notably, the presence of a CSR committee and stronger governance scores mitigate these negative effects – highlighting their significant role. These findings accentuate the need for regulatory reforms to strengthen board independence and institutionalize CSR committees, enhancing governance practices and accountability. • The first study examines the impact of board co-option on audit quality. • We use a probit regression model by following the dichotomous nature of our dependent variable. • Firms with more board co-option are more prone to compromise the quality audit. • This association is weakening in the presence of strong governance and CSR committees. • If a firm has high analyst coverage, it will ensure the quality of internal as well as external governance.

International Review of Financial AnalysisVol. 102
Saudi Electronic University (SA), Northumbria University (GB), Vinci (France) (FR), Istec Business School Paris
Openalex Percentile: Top 2%
Corporate Finance and Governance
11.73
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