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Does ownership structure affects audit quality: Evidence from Bahrain?

Abstract

Hussein Ali Khasharmeh, Nympha Joseph

The main objective of the study was to examine the effect of ownership structure upon the audit quality in a developing country, the case of Bahrain. To achieve this objective, annual reports of listed companies in Bahrain Burse for 2015 and unlisted companies registered by Central bank of Bahrain at September, 2016 were used in the analysis. Logistic regression was used to test the hypotheses. The results indicated that foreign ownership variable has a significant relationship at p ≤ 0.05 with audit quality-measured by using a proxy of audit firm size. This result confirms that the null hypothesis is rejected and the alternative hypothesis is accepted. On the other hand, institutional ownership and ownership concentration factors have positive relationship but not significant with the audit firm size. The study recommended that companies in Bahrain, both listed and unlisted, must continue to maintain supporting and encouraging foreign investments in Bahrain. Also, the study recommended the necessity to adopt new instructions that raise the percentage of institutional investments that will improve audit quality which leads to report high quality financial statements, and to follow a clear and rigid process of selecting auditors with high experience of accounting and auditing process.

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