The results of the study show the positive relationship between audit quality (measured as a Big-4 auditor based on a negative relationship with the earnings manipulation metrics) and board characteristics such as board independence and committee independence, as well as with the presence of three important committees (audit, remuneration and strategy). The research will begin with the analysis of the structure of the corporate governance system in Russia.
Theoretical background
Corporate governance and the Board of directors
13 of the company (including minority shareholders), while taking into account the interests of other stakeholders (Filatov, 2016). The board plays a very important role in the company's corporate governance.
Corporate audit
Develops the company's policy on compensation for members of the board of directors and management; 21 One of the articles (Knechel et al., 2014) analyzes the audit units that can influence audit quality. Firstly, input that is mainly reflected in the personal characteristics of the audit team.
When we talk about the quality of the audit and its connection with the audit process, the authors of the research identified several factors. Finally, the authors of the research identify contextual factors that may affect audit quality. A summary of factors influencing audit quality based on a review of different studies is shown in Figure 1.
The summary of the relationship observed by the authors between auditor specifications and other factors and its impact on audit quality is presented in Figure 2.
Literature review and hypotheses statement
Another research (Qawqzeh et al., 2021) analyzes the relationship between audit quality and board characteristics for companies from Jourdan. 27 So, research hypothesis 2 helps us investigate whether there is a relationship between audit quality measured as a Big-4 auditor and board independence. Some positive relationships between audit committee characteristics and audit quality were found by Kusnadi et al.
However, no significant relationship was found between audit committee independence and audit quality. Research hypothesis 4 therefore examines the relationship between audit quality and each of the three board committees: the audit committee, the strategy committee, and the remuneration committee. Thus, Hypothesis 5 tests the relationship between the cost of debt, audit quality, measured as a Big-4 auditor, and some measures of board structure.
Finally, hypothesis 6 tests the relationship between financial performance of Russian public companies (measured by ROA and ROE), audit quality measured as Big-4 auditor, and several board structure metrics.
Empirical study
Sampling
The empirical study is based on the population of the Russian listed companies from 2014 to 2019. The final sample consists of 146 Russian companies from different industries (the distribution can be seen in the Picture 31, list of companies is in the Appendix 1 presented). excluded companies from the financial sector, because they can differ significantly from the production companies (in addition, some of the companies now listed were excluded from the initial sample, because they do not have all the annual reports for periods 2014-2019 publicly available or some some of them were outliers). Data on the corporate governance (board size, board independence, presence of audit committee, strategy committee and compensation committee, their size and independence) and auditor of the company (Big-4 or non-Big-4) are from the firms' annual reports.
Econometric analysis
32 (Big-4 or non-Big-4) and the characteristics of the board structure: board size, board independence, presence of all three committees. To choose the best model for data description, we need to sequentially compare the evaluated models in a pairwise manner. This test tests the null hypothesis of whether all individual effects are equal to zero, so that the observations of the study have no established effects.
If we fail to reject this hypothesis, it is more preferable to use the pooled regression model. Again, if the null hypothesis is not rejected, it is more preferable to use a pooled regression model. In one of the hypotheses (H3), the dependent variable is binary: the presence of the three most important committees (audit, strategy and reward).
Control variables remain the same: size, corporate financial leverage, ROA as a measure of corporate performance.
Description of variables
All3 represents the presence of all three committees on the board, with the independent variable Big4 representing audit quality in the study. While OLS coefficients tell us how the dependent variable might change on average if the independent variable adds 1 (or takes the value of 1 for binary variables), the logit/probit models show us how the probability of the dependent variable taking 1 , will change. change depending on the independent variable change. When the independent variable itself is also a dummy variable, the "small change" is impossible, so we can understand how the probability of the dependent variable getting 1 will change if the independent variable gets 1.
Independent Big-4 Audit Quality Dummy variable indicating whether the company was audited by the Big-4 (1) or not. They are presented in the survey's descriptive statistics for a better understanding of the board structure in the companies in the sample.
Descriptive statistics
The average size of the board in the sample is 9 directors, which has not changed significantly compared to other research (PricewaterhouseCoopers, 2012; Berezinets et al., 2013). The independence of committees is naturally correlated with the independence of the board and the presence of the committee in the company. As previously mentioned, a positive change during the observation was mentioned according to the year of the annual report.
This not only concerns the variables used in the study, but also some others, for example the gender and racial diversity of the board. These companies are usually subsidiaries of larger companies, so they can be financed with equity from the parent company and not debt. The key difference between ROA and ROE is that the calculation also takes into account the company's ROA debt, so ROE does not include the company's financial leverage.
The information about the total assets of the company is added for reference - in the research we use the variable Size, which is the natural logarithm of total assets.
Regression analysis results
The second set of hypotheses (2-4) allows us to understand the relationship between some characteristics of the board of directors and the quality of the firm's audit, measured as a Big-4 auditor. For most of the model (except for one, for the variable "all three committees"), we used a linear regression model with fixed effects. From Table 6, we can see that the choice of auditor is positively related to the independence of the board and board committees.
However, it is difficult to claim that there are no other factors that influence both auditor selection and board independence. However, our hypotheses about audit quality and board and committee independence are accepted. As can be seen from table 7, on average ceteris paribus: increasing the size of the Board with 1 director will lead to an increase of 0.3% of ROA; Adding 1 independent director to the Board can have a positive effect of 1.7% on ROA.
Speaking of the cost of debt, ceteris paribus average: an increase in board size by 1 director will lead to a decrease in ROA by 0.2%; the addition of 1 independent director to the Board of Directors could increase the debt burden by 3.4%.
Discussion of the results
43 argue that there is a difference in the value of the company's performance indicator and cost of debt for the companies that have these committees and auditors from the Big-4 compared to those that do not have them. 44 Hypotheses 2 and 4 show that there is a correlation between audit quality measured by the Big-4 proxy and the independence of the board and the board committees. This means that choosing an auditor from Big-4 firms will increase the probability of the presence of all three committees in the company by 9%, meeting the recommendations of the Corporate Governance Code.
Therefore, the choice of an auditor contributes to the structure of the board in Russian companies, which corresponds to the recommendations of the regulators. There are specific recommendations from MOEX and the Corporate Governance Code regarding board size (from 5 to 15 directors). Since we used a measure based on accounting (ROA), the results of the thesis correspond to the results of the study (Zubeltzu et al., 2019).
It can be concluded that insufficient attention is still paid to the role of the institution of independent directors in Russia.
Managerial implications
First of all, we established a positive relationship between the quality of audits and the quality of accounting in Russian companies, based on the analysis of the interrelationship between the auditors of the Big-4 (as a measure of the quality of the audits) and earnings manipulations measured with discretionary accruals (as a measure of the quality of the audits). for accounting quality). Therefore, knowing the company's accountant allows stakeholders willing to invest in the company to assume that the company's financial statements are true and fair. Second, our sample shows that there is a direct positive relationship between the characteristics of the board (and committees) and the firm's auditor.
The auditor from the Big-4 has a positive relationship with the independence of the board and its committees and the presence of all three committees on the board. Board independence can be good for the company's reputation and attractive to investors, while committees can be useful in some operations as they are more aware of their expertise than the board itself. However, the independent directors should have real power and not just be formal to fulfill the recommendations of the code and MOEX.
This can become one of the limitations for the conflict of interest in the company.
Limitations of the research
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The effect of corporate governance on firm performance, evidence from Egypt //Asian Economic and Financial Review. The Relationship between Audit Quality and Corporate Governance: An Empirical Investigation in Borsa Istanbul //IOSR Journal of Business and Management (IOSR-JBM). An Analysis of Board Size and Firm Performance: Evidence from NSE Firms Using a Panel Data Approach //Indian Journal of Corporate Governance.
Corporate governance practices and audit quality: An empirical study of listed companies in Egypt //Available at SSRN 2257815.
List of companies
Correlation matrix
