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Board co-option and audit quality: Evidence from US

Author

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  • Alharbi, Samar S.
  • Saeed, Asif
  • Iqbal, Umer
  • Elommal, Najoua

Abstract

This study investigates the impact of board co-option on audit quality, a vital dimension of corporate governance that has received limited attention. Using a dataset of 9605 firm-year observations from U.S. listed firms, we examine the extent to which co-opted directors aligned with CEOs compromise audit quality, measured through BIG4 auditor selection and audit fees. Results show that board co-option significantly reduces audit quality, a finding robust to alternative co-option measures, propensity score matching, and IV-Probit models. Notably, the presence of a CSR committee and stronger governance scores mitigate these negative effects – highlighting their significant role. These findings accentuate the need for regulatory reforms to strengthen board independence and institutionalize CSR committees, enhancing governance practices and accountability.

Suggested Citation

  • Alharbi, Samar S. & Saeed, Asif & Iqbal, Umer & Elommal, Najoua, 2025. "Board co-option and audit quality: Evidence from US," International Review of Financial Analysis, Elsevier, vol. 102(C).
    • Handle: RePEc:eee:finana:v:102:y:2025:i:c:s1057521925002108
    DOI: 10.1016/j.irfa.2025.104123
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    Keywords

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    JEL classification:

    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • H83 - Public Economics - - Miscellaneous Issues - - - Public Administration
    • M42 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Auditing

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