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.
Authors
- Samar S. Alharbi (ORCID: https://orcid.org/0000-0002-9751-6120)
- Najoua Elommal (ORCID: https://orcid.org/0000-0002-2583-5907)
- Umer Iqbal
- Asif Saeed (ORCID: https://orcid.org/0000-0002-6003-7871)
Institutions
- Saudi Electronic University (SA)
- Northumbria University (GB)
- Vinci (France) (FR)
- Istec Business School Paris
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