Is Corporate Governance A Determinant of Auditor Choice?-Evidence From Turkey

Year 2013, Volume: 13 Issue: 2, 273 - 284, 01.05.2013

Yasemin Zengin Karaibrahimoğlu

Abstract

External independent audit is an important component of strong corporate governance. The choice of independent external auditor is determined by several different factors. Besides all firmspecific factors, corporate governance might be a determinant of external auditor choice. The relation between auditor choice and corporate governance varies in accordance with the “substitution or complementary effect”. Firms may prefer to demand less effective and low quality audit and substitute the quality of audit services by a strong corporate governance structure. Alternatively, firms may demand a high quality audit in order to complement and support firms’ corporate governance structure. Therefore it is important to understand how a strong corporate governance structure is associated with auditor choice to reveal the effect of each corporate governance mechanisms on Big-4 and industry-specialist auditor choice. The main aim of this study is to investigate the association between corporate governance and auditor choice by using a sample of 805 firm-year observations from Istanbul Stock Exchange (ISE) between the years 2005-2009. Overall findings show that, firms’ auditor choice in terms of Big-4 and audit firm industry specialization is affected by the firm-level corporate governance mechanisms of firms, particularly, board of directors’ composition and ownership structure

Keywords

Auditor choice, corporate governance, Turkey

Kurumsal Yönetim Denetçi Seçiminde Belirleyici midir?-Türkiye’den Bulgular

Abstract

Bağımsız dış denetim, güçlü kurumsal yönetimin önemli bir bileşenidir. Bağımsız dış denetçi seçimi birçok farklı etken tarafından belirlenir. Firmaya özgü faktörlerin yanı sıra, kurumsal yönetim, dış denetçi seçiminin bir belirleyicisi olabilir. Denetçi seçimi ve kurumsal yönetim arasındaki ilişki “ikame veya tamamlayıcı etkisi” ne göre değişiklik göstermektedir. Firmalar, bir taraftan güçlü bir kurumsal yönetişim yapısı ile denetim hizmetlerinin kalitesini ikame ederek, daha az etkili ve düşük kalitede denetimi talep etmeyi tercih edebilirken, diğer taraftan kurumsal yönetim yapısını tamamlamak ve desteklemek için yüksek kaliteli denetim de talep edebilirler. Bu nedenle, kurumsal yönetim mekanizmalarının dört büyük denetim firması ve uzman denetçi seçimi üzerindeki etkisini ortaya çıkarmak için, güçlü bir kurumsal yönetim yapısının denetçi seçimi ile ilişkisini anlamak önem arz etmektedir. Bu çalışmanın amacı, İstanbul Menkul Kıymetler Borsasında (İMKB’de) işlem gören firmaların 2005-2009 yılları arasındaki 805 firma-yıl verisi kullanılarak, kurumsal yönetim ve denetçi seçimi arasındaki ilişkiyi araştırmaktır. Genel bulgular dört büyük denetim firması ve uzman denetçi seçiminin, özellikle yönetim kurulu ve ortaklık yapısı gibi, içsel kurumsal yönetim mekanizmalarından etkilendiğini ortaya koymaktadır

Keywords

Denetçi seçimi, kurumsal yönetim, Türkiye

References

• Abbott, L.J., Parker, S., Peters, G.F. ve Rama, D.V. (2007) “Corporate Governance, Audit Quality, and the Sarbanes-Oxley Act:Evidence from Internal Audit Outsourcing” The Accounting Review, 82(4):803-835.
• Adyemi, S.B. veFagbemi, T.O. (2010) “Audit Quality, Corporate Governance and Firms Characteristics in Nigeria” International Journal of Business and Management, 5(5):169-179.
• Anderson, D., Jere, R.F. ve Donald J.S. (1993) “Auditing, Directorships and the Demand for Monitoring”Journal of Accounting and Public Policy, 12(4):353-375.
• Ararat, M., Orbay, H. ve Yurtoğlu, B.B. (2010) “The Effects of Board Independence in Controlled Firms: Evidence from Turkey” Working Paper Series.
• Balsam, S., Krishnan, J. ve Yang, S.J. (2003) “Auditor Industry Specialization and Earnings Quality”Auditing:A Journal of Practice & Theory, 22(2):61-96.
• Becker, C.L., DeFond M.L., Jiambalvo, J.J. veSubramanyam K.R. (1998) “The Effect of Audit Quality on Earnings Management” Contemporary Accounting Research, 15(1):1-24.
• Beasley, M.S. (1996) “An Empirical Analysis of the Relation between the Board of Directors and Financial Report Fraud”The Accounting Review, 71(4):443-465.
• Blue Ribbon Committee (1999)“Report and Recommendations of Blue Ribbon Committee on Improving the Effectiveness of Corporate Audit Committees”The Business Lawyer, 54(3):1067-1095.
• Cadbury Committee (1992) “Report of the Committee on the Financial Aspects of Corporate Governance” www.uksa.org.uk/Corporate_Governance_ Cadbury_1992.pdf, (07.09.2010)
• Capital Markets Board (2003) “Corporate Governance Principles”http://www.spk.gov.tr/ indexcont.aspx?action=showpage&menuid=10&pid=0, (07.09.2010)
• Capital Markets Board (2006) “Communiqué on Independent Auditing Standards in Capital Markets” http://spk.gov.tr/apps/teblig/index. aspx?lang=T&submenuheader=-1, (07.09.2010)
• De Angelo, L.E. (1981) “Auditor Size and Audit Quality” Journal of Accounting and Economics, 3(3):183- 199.
• DeFond, M.L., Jere J.F. ve Wong, T.J. (2000) “Auditor Industry Specialization and Market Segmentation: Evidence from Hong Kong” Auditing: A Journal of Practice & Theory, 19(1): 49-66.
• Demirag, I. veSerter, M. (2003) “Ownership Patterns and Control in Turkish Listed Companies”Corporate Governance: An International Review, 11(1):40-51.
• Durukan, M.B., Özkan, S. ve Dalkılıç, A.F. (2009) “The Effectiveness of The Turkish Corporate Governance System:CEO Changes and Performance Measures” Working Paper Series.
• Dye, R.A. (1993) “Auditing Standards, Legal Liability, and Auditor Wealth” The Journal of Political Economy, 101(5):887-914.
• García-Osma, B. (2006) “Earnings Quality, Auditor Monitoring and Corporate Governance Mechanisms” Unpublished PhD Thesis, United Kingdom, Lancaster University.
• Gillan, S.L. (2006) “Recent Developments in Corporate Governance: An Overview” Journal of Corporate Finance, 12(3):381-402.
• Hacımahmutoğlu, S. (2007) “The Problems of Minority Protection and their Solutions within the Legal Framework” Journal of Banking Regulation, 8(2):131- 158.
• Hampel Committee (1998) “Final Report on Corporate Governance”http://www.ecgi.org/codes/ documents/hampel_index.htm, (07.09.2010).
• Institute of International Finance (2005) “Corporate Governance in Turkey, an Investor Perspective”www. goodprogram.org/docs/IIFCorpGovTurkey_0405.pdf, (01.09.2010)
• Jensen, M.C. veMeckling, W.H. (1976) “Theory of the Firm: Managerial Behaviour, Agency Costs and Ownership Structure” Journal of Financial Economics, 3(4):305-360.
• Jensen, M.C.(1993) “The Modern Industrial Revolution, Exit, and the Failure of Internal Control Systems”The Journal of Finance, 48(3):831-880.
• Klein, A. (2002) “Audit Committee, Board of Director Characteristics, and Earnings Management” Journal of Accounting and Economics, 33(3):365-400.
• Krishnan, G.V. (2003) “Does Big 6 Auditor Industry ExpertiseConstrain Earnings Management?”Accounting Horizons, 17(1):1-16.
• LaPorta, R.,Lopez-de-Silanes, F., Shleifer, A. veVishny, R. (2000) “Investor Protection and Corporate Governance”Journal of Financial Economics, 58:3-27.
• Lin, Z.M. ve Liu, J. (2009) “The Impact of Corporate Governance on Auditor Choice: Evidence FromChina” Journal of International Accounting, Auditing and Taxation, 18:44-59.
• Mayoral, J.M. ve Segura, A.S. (2008) “Corporate Governance, Agency Conflicts and Auditor Choice” Revista Espanola De Financiacion Y Contabilidad-Spanish Journal of Finance and Accounting, 37(137):113-135.
• McMullen, D.A. ve Raghunandan, K. (1996) “Enhancing Audit Committee Effectiveness” Journal of Accountancy, August, 69-81.
• Peasnell, K.V, Pope P.F. ve Young, S. (2000). “Accrual Management to meet Earnings Targets: UK Evidence Pre-and Post-Cadbury” British Accounting Review, 32(4):415-445.
• Piot, C. ve Janin, R. (2006) “External Auditors, Audit Committees and Earnings Management in France” European Accounting Review, 16(2):429-454.
• Schauer, P.C. (2002) “The Effects of Industry Specialization on Audit Quality: An Examination Using Bid-Ask Spreads” Journal of Accounting and Finance Research, 10(1): 76-86.
• Siregar, S.V. veUtama, S. (2008) “Type of Earnings Management and the Effect of Ownership Structure, Firm Size, and Corporate Governance Practices: Evidence from Indonesia” The International Journal of Accounting, 43(1):1-26.
• Solomon, I., Shields, M.D. ve Whittington, O.R. (1999) “What Do Industry-Specialist Auditors Know?” Journal of Accounting Research, 37(1):191-208.
• The Sarbanes-Oxley Act.(2002) news.findlaw. com/cnn/docs/gwbush/sarbanesoxley072302.pdf, (07.09.2010).
• Wallace, W. (2004) “The Economıc Role of the Audit in Free and Regulated Markets: A Look Back and A Look Forward” Working Paper Series, No:17.
• Watts, R.L. ve Zimmerman, J.L. (1986) Positive Accounting Theory, New Jersey, Prentice Hall.
• Willenborg, M. (1999) “Empirical Analysis of the Economic Demand for Auditing in the Initial Public Offering Market” Journal of Accounting Research, 37(1):225-238.
• Williamson, O.E. (1983) “Organizational Form, Residual Claimants, and Corporate Control” Journal of Law and Economics, 26(2):351-366.
• Bauwhede, H.V., Willekens, M.veGaeremynck, A. (2000) “Audit Quality, Public Ownership and Firms” Discretionary Accruals Management” Working Paper Series, No:53.
• Van Tendeloo, B.V ve Vanstraelen, A. (2008) “Earnings Management and Audit Quality in Europe: Evidence from the Private Client Segment Market”European Accounting Review, 17(3):447-469.
• Yeoh, E.veJubb, C.A. (2002) “Governance and Audit Quality: Is there an Association?”American Accounting Association Auditing Section Midyear Conference, Orlando, Florida, United States.