Ownership Structure, External Audit and Firm Performance in Iraq
Abstract
This study investigated the influence of corporate governance mechanisms on firm performance of public listed companies in Iraq. Specifically, the study examined the effect of managerial ownership, ownership concentration (block ownership, local institutional ownership, and foreign institutional ownership), and external audit on firm performance. The study utilized data extracted from the annual report of public listed companies on the Iraqi Stock Exchange over the period 2012 – 2015. The result revealed a positive and significant relationship between managerial ownership and firm performance. While it was found that block ownership does not have any relationship with firm performance. Local institutional ownership, foreign institutional ownership, and external audit have a negative and significant relationship with firm performance. This implies that managerial ownership improves firms performance while block ownership, local institutional ownership, and foreign institutional ownership and likewise external audit are not effective tools in improving firm performance. The findings of this study have implications on the policy-making that are meant to reconcile the difference between agent and principal.
References
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Bhagat, S., & Bolton, B. (2008). Corporate governance and firm performance. Journal of corporate finance, 14(3), 257-273
Charitou, A., Lambertides, N., & Trigeorgis, L. (2007). Earnings behaviour of financially distressed firms: the role of institutional ownership. Abacus, 43(3), 271-296.
Cheng, P., Su, L. N., & Zhu, X. K. (2011). Managerial ownership, board monitoring and firm performance in a family‐concentrated corporate environment. Accounting & Finance, 52(4), 1061-1081.
Choi, S. B., Park, B. I., & Hong, P. (2012). Does ownership structure matter for firm technological innovation performance? The case of Korean firms. Corporate Governance: An International Review, 20(3), 267-288.
Daraghma, Z. M., &Alsinawi, A. A. (2010). Board of directors, management ownership, and capital structure and its effect on performance: The case of palestine securities exchange. International journal of business and management, 5(11), 118.
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Davis, E. P., & Steil, B. (2004). Institutional investors. MIT press.
DeAngelo, L. E. (1981). Auditor size and audit quality. Journal of accounting and economics, 3(3), 183-199.
Denis, D. J., & Denis, D. K. (1994). Majority owner-managers and organizational efficiency. Journal of corporate finance, 1(1), 91-118.
Doski, S. A. (2015). The necessity of issuing a corporate governance code for the Kurdistan Region. Journal of Finance and Accountancy, 18.
Fama, E. F. (1980). Agency Problems and the Theory of the Firm. The journal of political economy, 288-307.
Fan, J. P., & Wong, T. J. (2005). Do external auditors perform a corporate governance role in emerging markets? Evidence from East Asia. Journal of accounting research, 43(1), 35-72.
Farhat, A. (2014). Corporate governance and firm performance: the case of UK(Doctoral dissertation, University of Portsmouth).
Fauzi, F., & Locke, S. (2012). Board structure, ownership structure and Firm performance: A study of New Zealand listed-firms. Asian Academy of Management Journal of Accounting and Finance, 8(2), 43-67.
Ferreira, M. A., & Matos, P. (2008). The colors of investors’ money: The role of institutional investors around the world. Journal of Financial Economics, 88(3), 499-533.
Florackis, C., Kostakis, A., &Ozkan, A. (2009). Managerial ownership and performance. Journal of Business Research, 62(12), 1350-1357.
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Francis, J. R. (2004). What do we know about audit quality?. The British accounting review, 36(4), 345-368.
Ghahroudi, M. R. (2011). Ownership advantages and firm factors influencing performance of foreign affiliates in Japan. International Journal of Business and Management, 6(11), 119.
Ghosh, S. (2007). External auditing, managerial monitoring and firm valuation: an empirical analysis for India. International Journal of Auditing, 11(1), 1-15.
Habbash, M. (2010). The effectiveness of corporate governance and external audit on constraining earnings management practice in the UK (Doctoral dissertation, Durham University).
Haniffa, R., &Hudaib, M. (2006). Corporate governance structure and performance of Malaysian listed companies. Journal of Business Finance & Accounting, 33(7‐8), 1034-1062.
Hay, D. C., Knechel, W. R., & Wong, N. (2006). Audit Fees: A Meta-Analysis of the Effect of Supply and Demand Attributes. Contemporary accounting research, 23(1), 141-191.
Hussein, N.A. (2018). Earnings Management, Corporate Governance and Government Equity Ownership: Empirical Evidence from Iraq.. Master thesis.UUM.
Jensen, M. C., &Meckling, W. H. (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of financial economics, 3(4), 305-360.
Joh, S. W. (2003). Corporate governance and firm profitability: evidence from Korea before the economic crisis. Journal of financial Economics, 68(2), 287-322.
Khanna, T., & Palepu, K. (1999). Emerging market business groups, foreign investors, and corporate governance (No. w6955). National Bureau of Economic Research.
Kimura, F., & Kiyota, K. (2007). Foreign‐owned versus Domestically‐owned Firms: Economic Performance in Japan. Review of Development Economics, 11(1), 31-48.
Kirkpatrick, G. (2009). The corporate governance lessons from the financial crisis. OECD Journal Financial Market Trends, 2009(1), 61-87.
Koo, J., & Maeng, K. (2006). Foreign ownership and investment: Evidence from Korea. Applied Economics, 38(20), 2405-2414.
Lennox, C. (2005). Management ownership and audit firm size. Contemporary Accounting Research, 22(1), 205-227
Mandaci, P., &Gumus, G. (2010). Ownership concentration, managerial ownership and firm performance: Evidence from Turkey. South East European Journal of Economics and Business, 5(1), 57-66.
Martinez, A. L., & de Jesus Moraes, A. (2014). Association Between Independent Auditor Fees and Firm Value: A Study of Brazilian Public Companies. Journal of Modern Accounting and Auditing, 10(4), 442-450.
Mashhadani, B.N. and Talab, H.R. (2013). The Role of Management Accountant In Implementing Corporate Governance Mechanisms. Journal of Economic and Administrative Sciences. 49(71). 454-473.
Persons, O. S. (2006). Corporate governance and non-financial reporting fraud. The Journal of Business and Economic Studies, 12(1), 27.
Rafiee, V. B., & Sarabdeen, J. (2012). Cultural Influence in the Practice of Corporate Governance in Emerging Markets. Communications of the IBIMA, 2012, 1
Shleifer, A., & Vishny, R. W. (1986). Large shareholders and corporate control. The Journal of Political Economy, 461-488.
Shleifer, A., & Vishny, R. W. (1997).A survey of corporate governance. The journal of finance, 52(2), 737-783.
Singh, M., & Davidson III, W. N. (2003). Agency costs, ownership structure and corporate governance mechanisms. Journal of Banking & Finance, 27(5), 793-816.
Stanley, J. D. (2011). Is the audit fee disclosure a leading indicator of clients' business risk?. Auditing: A Journal of Practice & Theory, 30(3), 157-179.
Tabachnick, B. G., & Fidell, L. S. (2007). Using multivariate statistics (5th ed.). Boston: Allyn and Bacon.
Talab, H. R., Flayyih, H. H., and Ali, S. I., (2018). Role of Beneish M-score model in Detecting of Earnings Management Practices: Empirical Study in listed banks of Iraqi Stock Exchange. international journal of Applied Business and Economic Research.16.
Talab, H.R. (2009). A Suggested Model for The Role of Management Accounting Implementing Corporate Governance Mechanisms. Master Thesis. University of Baghdad.
Talab, H.R. (2015). Impact of the implementation of corporate governance mechanisms in lower expectations for the fair value gap An Empirical Study of the Iraqi private companies listed on the Iraq Stock Exchange. Baghdad College of Economic Sciences, 45, 381-412.
Talab, H.R., Abdul Manaf, K.B., and Abdul Malak, S.S.D., (2017a). Internal Audit Function, Ownership Structure and Firm Performance in Iraq. The 5th International Accounting and Business Conference. Malaysia.
Talab, H.R., Abdul Manaf, K.B., and Abdul Malak, S.S.D., (2017b). Corporate Governance Mechanisms and Firm Performance in Iraq: A Conceptual Framework. Account and Financial Management Journal.2(11). 1132-1146.
Tamimi, A.H., Flayyih, H.H., (2017). The effects of Governance on the financial reporting quality of state-owned companies. 8th international scientific conference, college of business and administrative
Zhong, K., Gribbin, D. W., & Zheng, X. (2007). The effect of monitoring by outside blockholders on earnings management. Quarterly Journal of Business and Economics, 37-60.
Al-taie, B. F. K., Flayyih, H. H., Talab, H. R., & Hussein, N. A. (2017). The Role of Tax Havens in the Tax Revenue Development and Its Reflection on the Public Revenues of the Developing Countries: An Empirical Study in Iraq (2004-2014). Mediterranean Journal of Social Sciences, 8(2), 289.
Ardiana, P. A. (2014). The Role of External Audit in Improving Firm’s Value: Case of Indonesia. December, 21, 1-15.
Beatty, R. (1986). The initial public offering market for auditing services. Fishman-Davidson Center for the Study of the Service Sector, Wharton School of the University of Pennsylvania
Bhagat, S., & Bolton, B. (2008). Corporate governance and firm performance. Journal of corporate finance, 14(3), 257-273
Charitou, A., Lambertides, N., & Trigeorgis, L. (2007). Earnings behaviour of financially distressed firms: the role of institutional ownership. Abacus, 43(3), 271-296.
Cheng, P., Su, L. N., & Zhu, X. K. (2011). Managerial ownership, board monitoring and firm performance in a family‐concentrated corporate environment. Accounting & Finance, 52(4), 1061-1081.
Choi, S. B., Park, B. I., & Hong, P. (2012). Does ownership structure matter for firm technological innovation performance? The case of Korean firms. Corporate Governance: An International Review, 20(3), 267-288.
Daraghma, Z. M., &Alsinawi, A. A. (2010). Board of directors, management ownership, and capital structure and its effect on performance: The case of palestine securities exchange. International journal of business and management, 5(11), 118.
Davies, J. R., Hillier, D., & McColgan, P. (2005). Ownership structure, managerial behavior and corporate value. Journal of Corporate Finance, 11(4), 645-660.
Davis, E. P., & Steil, B. (2004). Institutional investors. MIT press.
DeAngelo, L. E. (1981). Auditor size and audit quality. Journal of accounting and economics, 3(3), 183-199.
Denis, D. J., & Denis, D. K. (1994). Majority owner-managers and organizational efficiency. Journal of corporate finance, 1(1), 91-118.
Doski, S. A. (2015). The necessity of issuing a corporate governance code for the Kurdistan Region. Journal of Finance and Accountancy, 18.
Fama, E. F. (1980). Agency Problems and the Theory of the Firm. The journal of political economy, 288-307.
Fan, J. P., & Wong, T. J. (2005). Do external auditors perform a corporate governance role in emerging markets? Evidence from East Asia. Journal of accounting research, 43(1), 35-72.
Farhat, A. (2014). Corporate governance and firm performance: the case of UK(Doctoral dissertation, University of Portsmouth).
Fauzi, F., & Locke, S. (2012). Board structure, ownership structure and Firm performance: A study of New Zealand listed-firms. Asian Academy of Management Journal of Accounting and Finance, 8(2), 43-67.
Ferreira, M. A., & Matos, P. (2008). The colors of investors’ money: The role of institutional investors around the world. Journal of Financial Economics, 88(3), 499-533.
Florackis, C., Kostakis, A., &Ozkan, A. (2009). Managerial ownership and performance. Journal of Business Research, 62(12), 1350-1357.
Fooladi, M., & Shukor, Z. A. (2012, December). Board of Directors, Audit Quality and firm performance: Evidence from Malaysia. In National Research & Innovation Conference for Graduate Students in Social Sciences (pp. 7-9).
Francis, J. R. (2004). What do we know about audit quality?. The British accounting review, 36(4), 345-368.
Ghahroudi, M. R. (2011). Ownership advantages and firm factors influencing performance of foreign affiliates in Japan. International Journal of Business and Management, 6(11), 119.
Ghosh, S. (2007). External auditing, managerial monitoring and firm valuation: an empirical analysis for India. International Journal of Auditing, 11(1), 1-15.
Habbash, M. (2010). The effectiveness of corporate governance and external audit on constraining earnings management practice in the UK (Doctoral dissertation, Durham University).
Haniffa, R., &Hudaib, M. (2006). Corporate governance structure and performance of Malaysian listed companies. Journal of Business Finance & Accounting, 33(7‐8), 1034-1062.
Hay, D. C., Knechel, W. R., & Wong, N. (2006). Audit Fees: A Meta-Analysis of the Effect of Supply and Demand Attributes. Contemporary accounting research, 23(1), 141-191.
Hussein, N.A. (2018). Earnings Management, Corporate Governance and Government Equity Ownership: Empirical Evidence from Iraq.. Master thesis.UUM.
Jensen, M. C., &Meckling, W. H. (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of financial economics, 3(4), 305-360.
Joh, S. W. (2003). Corporate governance and firm profitability: evidence from Korea before the economic crisis. Journal of financial Economics, 68(2), 287-322.
Khanna, T., & Palepu, K. (1999). Emerging market business groups, foreign investors, and corporate governance (No. w6955). National Bureau of Economic Research.
Kimura, F., & Kiyota, K. (2007). Foreign‐owned versus Domestically‐owned Firms: Economic Performance in Japan. Review of Development Economics, 11(1), 31-48.
Kirkpatrick, G. (2009). The corporate governance lessons from the financial crisis. OECD Journal Financial Market Trends, 2009(1), 61-87.
Koo, J., & Maeng, K. (2006). Foreign ownership and investment: Evidence from Korea. Applied Economics, 38(20), 2405-2414.
Lennox, C. (2005). Management ownership and audit firm size. Contemporary Accounting Research, 22(1), 205-227
Mandaci, P., &Gumus, G. (2010). Ownership concentration, managerial ownership and firm performance: Evidence from Turkey. South East European Journal of Economics and Business, 5(1), 57-66.
Martinez, A. L., & de Jesus Moraes, A. (2014). Association Between Independent Auditor Fees and Firm Value: A Study of Brazilian Public Companies. Journal of Modern Accounting and Auditing, 10(4), 442-450.
Mashhadani, B.N. and Talab, H.R. (2013). The Role of Management Accountant In Implementing Corporate Governance Mechanisms. Journal of Economic and Administrative Sciences. 49(71). 454-473.
Persons, O. S. (2006). Corporate governance and non-financial reporting fraud. The Journal of Business and Economic Studies, 12(1), 27.
Rafiee, V. B., & Sarabdeen, J. (2012). Cultural Influence in the Practice of Corporate Governance in Emerging Markets. Communications of the IBIMA, 2012, 1
Shleifer, A., & Vishny, R. W. (1986). Large shareholders and corporate control. The Journal of Political Economy, 461-488.
Shleifer, A., & Vishny, R. W. (1997).A survey of corporate governance. The journal of finance, 52(2), 737-783.
Singh, M., & Davidson III, W. N. (2003). Agency costs, ownership structure and corporate governance mechanisms. Journal of Banking & Finance, 27(5), 793-816.
Stanley, J. D. (2011). Is the audit fee disclosure a leading indicator of clients' business risk?. Auditing: A Journal of Practice & Theory, 30(3), 157-179.
Tabachnick, B. G., & Fidell, L. S. (2007). Using multivariate statistics (5th ed.). Boston: Allyn and Bacon.
Talab, H. R., Flayyih, H. H., and Ali, S. I., (2018). Role of Beneish M-score model in Detecting of Earnings Management Practices: Empirical Study in listed banks of Iraqi Stock Exchange. international journal of Applied Business and Economic Research.16.
Talab, H.R. (2009). A Suggested Model for The Role of Management Accounting Implementing Corporate Governance Mechanisms. Master Thesis. University of Baghdad.
Talab, H.R. (2015). Impact of the implementation of corporate governance mechanisms in lower expectations for the fair value gap An Empirical Study of the Iraqi private companies listed on the Iraq Stock Exchange. Baghdad College of Economic Sciences, 45, 381-412.
Talab, H.R., Abdul Manaf, K.B., and Abdul Malak, S.S.D., (2017a). Internal Audit Function, Ownership Structure and Firm Performance in Iraq. The 5th International Accounting and Business Conference. Malaysia.
Talab, H.R., Abdul Manaf, K.B., and Abdul Malak, S.S.D., (2017b). Corporate Governance Mechanisms and Firm Performance in Iraq: A Conceptual Framework. Account and Financial Management Journal.2(11). 1132-1146.
Tamimi, A.H., Flayyih, H.H., (2017). The effects of Governance on the financial reporting quality of state-owned companies. 8th international scientific conference, college of business and administrative
Zhong, K., Gribbin, D. W., & Zheng, X. (2007). The effect of monitoring by outside blockholders on earnings management. Quarterly Journal of Business and Economics, 37-60.