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CEO duality, audit committee effectiveness and audit risks: A study of the Malaysian market

Mark A. Bliss (School of Accounting and Finance, The Hong Kong Polytechnic University, Kowloon, Hong Kong)
Balachandran Muniandy (School of Accounting and Finance, The Hong Kong Polytechnic University, Kowloon, Hong Kong)
Abdul Majid (School of Accounting and Finance, The Hong Kong Polytechnic University, Kowloon, Hong Kong)

Managerial Auditing Journal

ISSN: 0268-6902

Article publication date: 31 July 2007

5474

Abstract

Purpose

The purpose of this study is to examine the relationship between a firm's internal corporate governance characteristics and audit fees, and whether the external auditor perceives higher inherent risk when CEO duality is present. Additionally, it aims to examine whether having more independent directors on audit committee moderates the auditor's perceived inherent risk when CEO duality is present.

Design/methodology/approach

The data used in testing the hypotheses consist of all the Malaysian public listed companies on the main board in terms of market capitalization non‐finance listed companies for year 2001. Multiple regression analysis is used to estimate the relationships proposed in the hypotheses.

Findings

The results show that the presence of CEO duality on the board, a proxy for board independence, is associated with higher audit fees and that this positive relationship is significantly weakened when the firm has a higher proportion of independent directors on the audit committee. These results suggest that auditors in their assessment of the inherent risk of a firm recognize that independent audit committees provide an important check to moderate CEO dominance in firms where CEO duality is present.

Originality/value

In this study, the effect of CEO duality and the independence of the board and audit committee are considered. The paper provides an important insight that having more independent directors on the audit committee moderates the auditor's perceived inherent risk when CEO duality is present following the new code of corporate governance introduced in Malaysia in the aftermath of the Asian financial crisis.

Keywords

Citation

Bliss, M.A., Muniandy, B. and Majid, A. (2007), "CEO duality, audit committee effectiveness and audit risks: A study of the Malaysian market", Managerial Auditing Journal, Vol. 22 No. 7, pp. 716-728. https://doi.org/10.1108/02686900710772609

Publisher

:

Emerald Group Publishing Limited

Copyright © 2007, Emerald Group Publishing Limited

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