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The moderating impact of the audit committee on the relationship between audit quality and market reactions in South Africa

Author

Listed:
  • Amon Bagonza
  • Chen Yan
  • Frederik Rech

Abstract

Purpose - This paper aims to examine whether the audit committee moderates the relationship between audit quality and market reactions. Design/methodology/approach - Using fixed effects and the GMM model for robustness, the study used 472 publicly listed firms on South Africa’s Johannesburg stock exchange spanning a period of six years from 2014 to 2019. Findings - Results obtained show that audit quality impacts market reactions through share price and adjusted market returns. And, that the audit committee moderates the relationship between audit quality and market reactions in South Africa’s publicly listed firms. An effective audit committee is expected to play a crucial role in overseeing the audit process, ensuring the independence of auditors and promoting transparency and accountability which in turn impacts asset prices. Research limitations/implications - The study implies that governments and regulatory bodies in other developing economies could strengthen regulations about companies’ Acts, how firms regulate themselves and more so audit committees. Firms can also strive to make sure that audit committees are staffed with experts to promote higher audit quality and investor attention to get access to the much-alluded capital. Originality/value - To the best of the authors’ knowledge, the study adds value by being the first to explore the subject matter of the importance of audit committees in defining audit quality and market reactions in publicly listed firms. The research adds to the body of knowledge on corporate governance and audit quality. It provides a case study specific to the South African context, contributing to the global literature on these topics.

Suggested Citation

  • Amon Bagonza & Chen Yan & Frederik Rech, 2024. "The moderating impact of the audit committee on the relationship between audit quality and market reactions in South Africa," Journal of Accounting & Organizational Change, Emerald Group Publishing Limited, vol. 21(1), pages 1-23, February.
  • Handle: RePEc:eme:jaocpp:jaoc-01-2023-0025
    DOI: 10.1108/JAOC-01-2023-0025
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    More about this item

    Keywords

    South Africa; Audit committee; Audit quality; Market reactions; G10; G34; M42;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • M42 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Auditing

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