Board characteristics and audit quality: the moderating effect of board independence change

Abstract

This study investigates the impact of board characteristics and bank-specific factors on audit quality in Indian listed banks. The sample size consists of 38 banks listed on the Bombay Stock Exchange. The data cover 10 years from 2010 to 2019. The study utilizes logistic panel regressions to estimate the findings. The results reveal that board independence and diligence have a significant negative impact on the selection a Big-4 auditor and auditor change. The results also indicate that board size and promoters are found to have a significant negative influence on selecting a Big-4 auditor. However, board independence change exhibits a moderating influence that weakens significantly and negatively the selection of a Big-4 auditor and switching from a non-Big-4 to a Big-4 auditor. The study makes a unique contribution to the existing literature by investigating the moderating effect of board independence change. The findings are grounded in agency and stakeholder theories, thereby enhancing our comprehension of how board independence change could influence information asymmetry and agency problems. Since there is limited knowledge and importance surrounding this issue, particularly within the context of India’s financial institutions, this study is critical, as their business practices serve as a model for other corporations.

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