Financial Performance and Audit Committee Characteristics: An Empirical Study on Bahrain Services Sector
Journal of Contemporary Issues in Business and Government,
2021, Volume 27, Issue 2, Pages 4278-4288
AbstractPurpose: The main purpose of this research paper is to investigate the association of audit committee characteristics and financial performance among services sector corporation-listed in Bahrain Stock Exchange.
Design/methodology/approach: In this research paper, the corporations listed on the Bahrain Stock Exchange for the period from 2012 to 2019 are examined. To fulfill the current purpose of the research paper, the linear panel regression method is employed. However, the audit committee characteristics represented by expertise, board independence, board size and frequently meetings are the independent variables of the current study, and return on equity and earning per share a proxy of financial performance are the dependent variables. Corporation’s size, leverage and age are examined as control variables.
Findings: There is significant relationship between ACID, ACMEET, FSIZE and the performance (ROA, ROE and EPS). there is no statistical significance between the ACFE, ACS, FAGE and performance (ROA, ROE and EPS), the LVRGE have an impact on EPS but not on ROA, ROE.
Practical implications: The findings of the current research paper expected to be important for government and corporations policymakers in constructing an appropriate set of governance mechanisms related to the audit committee characteristics, and for current and potential investors in shaping their understanding of corporate governance code and it’s principles in Bahrain context.
- Abor, J. (2005), “The effect of Capital structure on profitability: an empirical analysis of listed firms in Ghana”, The Journal of Risk Finance, Vol. 6 No. 5, pp. 438-445.
- Ali, B. J. & Oudat, M. S. (2020). Financial Risk and the Financial Performance in listed Commercial and Investment Banks in Bahrain Bourse. International Journal of Innovation, Creativity and Change, 13(12), 160-180.
- Ali, B., & Omar, W. (2016). Relationship between E-Banking Service Quality and Customer Satisfaction in Commercial Banks in Jordan. American Based Research Journal, Vol-5-Issue-12, pp 34-2.
- Ahmad, R.A.R., Abdullah, N., Jamel, N.E.S.M. and Omar, N. (2015), “Board characteristics and risk management and internal control disclosure level: evidence from Malaysia”, Procedia Economics and Finance, Vol. 31, pp. 601-610.
- Akbar, A. (2015), “The role of corporate governance mechanism in optimizing firm performance, a conceptual model for the corporate sector of Pakistan”, Asian Economic and Social Society, Vol. 5 No. 6, pp. 109-115.
- Aktan B., Turen S., Tvaronavičienė M., Celik S., and Alsadeh H. A. (2018), “Corporate Governance and Performance of the Financial Firms in Bahrain”, Polish Journal of Management Studies, Vol. 17 No. 1, pp. 39-58.
- Al Farooque, O., Buachoom, W., and Sun, L. (2019), “Board, audit committee, ownership and financial performance – emerging trends from Thailand”, Pacific Accounting Review, Vol. 32 No. 1, pp. 54-81.
- Alqatamin, R.M. (2018), “Audit committee effectiveness and company performance”, Accounting and Finance Research,Vol. 7 No. 2, pp.48-60.
- Al-Okaily, J. and Naueihed, S. (2020), “Audit committee effectiveness and family firms: impact on performance”, Management Decision, Vol. 58 No. 6, pp. 1021-1034.
- Anderson, R.C., Mansi S.A and Reeb D.M., (2004). “Board characteristics, accounting report integrity and the cost of debt”, Journal of accounting and economics, Vol. 37, pp. 315-342.
- Ajili, H., & Bouri, A. (2018). Corporate governance quality of Islamic banks: measurement and effect on financial performance. International Journal of Islamic and Middle Eastern Finance and Management, 11(3), 470–487.
- Al-Matari, E. M. (2019). Do characteristics of the board of directors and top executives have an effect on corporate performance among the financial sector? Evidence using stock. Corporate Governance (Bingley), 20(1), 16–43.
- AL Nasser, Z. (2019). The effect of royal family members on the board on firm performance in Saudi Arabia. Journal of Accounting in Emerging Economies.
- Arouri, H., Hossain, M., & Muttakin, M. B. (2014). Effects of board and ownership structure on corporate performance. Journal of Accounting in Emerging Economies, 4(1), 117–130.
- Azam, M.N., Hoque, M.Z. and Yeasmin, M. (2010), “Audit committee and equity return: the case of Australian firms”, International Review of Business Research Papers, Vol. 6 No. 4, pp. 202-208.
- Badolato, P.G., Donelson, D.C. and Ege, M. (2014), “Audit committee financial expertise and earnings management: the role of status”, Journal of Accounting and Economics, Vol. 58 No. 2/3, pp. 208-230.
- Bahrain Economic Report. (2019), available online at:
- Baxter, P. and Cotter, J. (2009), “Audit committees and earnings quality”, Accounting & Finance, Vol. 49 No. 2, pp. 267-290.
- Bédard, J., Chtourou, S. and Courteau, L. (2004). “The effect of audit committee expertise, independence, and activity on aggressive earnings management, Auditing”, Journal of Practice & Theory, Vol. 23 No. 2, pp. 13–35.
- Buallay, A. and Al-Ajmi, J. (2018), “The role of audit committee attributes in corporate sustainability reporting Evidence from banks in the Gulf Cooperation Council”, Journal of Applied Accounting Research, Vol. 21 No. 2, pp. 249-264
- Chaudhry, N.I., Roomi, M.A., and Aftab, I. (2020), “Impact of expertise of audit committee chair and nomination committee chair on financial performance of firm”, Corporate Governance, Vol. 20 No. 4, pp. 621-638.
- Corporate Governance Code Bahrain Report. (2010), available online at: https://www.moic.gov.bh/en/FAQ/Documents/Corporate%20Governance%20Code%20Bahrain%20-%20English.pdf
- Davidson, W.N., Xie, B. and Xu, W. (2004), “Market reaction to voluntary announcements of audit committee appointments: the effect of financial expertise”, Journal of Accounting and Public Policy, Vol. 23 No. 4, pp. 279-293.
- Davidson, R., Goodwin-Stewart, J. and Kent, P. (2005), “Internal governance structures and earnings management”, Accounting and Finance, Vol. 45 No. 2, pp. 241-268.
- Fama, E. and Jensen, M. (1983), “Agency problems and residual claims”, The Journal of Law and Economics, Vol. 26 No. 2, pp. 327-349.
- Farouk, M.A., and Hassan, S.U. (2014), “Impact of audit quality and financial performance of quoted cement firms in Nigeria”, International Journal of Accounting and Taxation, Vol. 2 No. 2, pp. 1-22.
- Ghafran, C. and O’Sullivan, N. (2017), “The impact of audit committee expertise on audit quality: evidence from UK audit fees”, The British Accounting Review, Vol. 49 No. 6, pp. 578-593.
- Gujarati, D. (2003), “Basic Econometrics”, 4th ed. New York: McGraw Hill.
- Gurusamy, P. (2017), “Board Characteristics, Audit Committee and Ownership Structure Influence on Firm Performance of Manufacturing Firms in India”, International Journal of Business and Economics Research, Vol. 6 No. 4, ppt. 73-87.
- Hakimi, A., Rachdi, H., Mokni, R.B.S., and Hssini, H. (2018), “Do board characteristics affect bank performance? Evidence from the Bahrain Islamic banks”, Journal of Islamic Accounting and Business, Vol. 9 No. 2.
- Hsu, W.-Y., and Petchsakulwong, P. (2010),” The impact of corporate governance on the efficiency performance of the Thia non-financial life insurance industry”, The Geneva Papers on Risk and Insurance - Issues and Practice, Vol. 35 No. 1, pp. S28-S49.
- Hair Jr, J. F., Black, W. C., Babin, B. J., Anderson, R. E., & Tatham, R. L. (2010). SEM: An introduction. Multivariate data analysis: A global perspective.
- Hakimi, A., Rachdi, H., Ben Selma Mokni, R., & Hssini, H. (2018). Do board characteristics affect bank performance? Evidence from the Bahrain Islamic banks. Journal of Islamic Accounting and Business Research, 9(2), 251–272.
- Hamdan, A. (2018). Board interlocking and firm performance: the role of foreign ownership in Saudi Arabia. International Journal of Managerial Finance, 14(3), 266–281.
- Hamdan, A. M. M., & Al Mubarak, M. M. S. (2017). The impact of board independence on accounting-based performance. Journal of Economic and Administrative Sciences, 33(2), 114–130.
- Jensen, M. and Meckling, W. (1976), “Theory of the firm: managerial behavior, agency-costs and ownership structure”, Journal of Financial Economics, Vol. 3 No. 4, pp. 305-360.
- Juhmani, O. (2017), “Audit Committee Characteristics and Earnings Management: The Case of Bahrain”, International Journal of Accounting and Financial Reporting, Vol. 7 No.1, pp. 11-31.
- Kipkoech, S.R. and Rono, L. (2016), “Audit committee size, experience and firm financial performance: evidence Nairobi securities exchange, Kenya”, Research Journal of Finance and Accounting, Vol. 7 No. 15, pp. 87-95.
- Kukreja, G. (2013). Impact of New Corporate Governance Code on Disclosures : Evidences from Bahraini Listed Commercial. Advances in Management & Applied Economics, 3(3), 171–191.
- Li, J., Mangena, M. and Pike, R. (2012), “The effect of audit committee characteristics on intellectual capital disclosure”, The British Accounting Review, Vol. 44 No. 2, pp. 98-110.
- Lin, J.W. and Hwang, M.I. (2010), “Audit Quality, Corporate Governance, and Earnings Management: A Meta-Analysis”, International Journal of Auditing, Vol. 14 No. 1, pp. 57-77.
- Musallam, S.R.M. (2020), “Effects of board characteristics, audit committee and risk management on corporate performance: evidence from Palestinian listed companies”, International Journal of Islamic and Middle Eastern Finance and Management, Vol. 13 No.4, pp. 691-706.
- Mustafa, S.T. and Ben Youssef, N. (2010), “Audit committee financial expertise and misappropriation of assets”, Managerial Auditing Journal, Vol. 25 No. 3, pp. 208-225.
- Neifar, S. and Jarboui, A. (2018), “Corporate governance and operational risk voluntary disclosure: evidence from Islamic banks”, Research in International Business and Finance, Vol. 46 No. 1, pp. 43-54.
- Newsom, J. T. (2006). Distinguishing between random and fixed: Variables, effects, and coefficients. Portland State University. URL: http://www. upa. pdx. edu/IOA/newsom/mlrclass/ho_randfixd. doc (2006-07-19).
- Oudat, M.S., and Ali, B.J. (2020). “Effect of Bad Debt, Market Capitalization, Operation Cost Capital Adequacy, Cash Reserves on Financial Performance of Commercial Banks in Bahrain”, International Journal of Psychosocial Rehabilitation, Vol. 24 No.1, pp. 5979- 5986.
- Oudat, M. S., & Ali, B. J. (2021),The Underlying Effect of Risk Management On Banks' Financial Performance: An Analytical Study On Commercial and Investment Banking in Bahrain. Elementary Education Online, Vol. 20 No.5, pp. 404-414.
- Puni, A. and Anlesinya, A. (2020), “Corporate governance mechanisms and firm performance in a developing country”, International Journal of Law and Management, Vol. 62 No. 2, pp. 147-169.
- Rahman, M.M., Meah, M.R., and Chaudhory, N. U. (2019), “The Impact of Audit Characteristics on Firm Performance: An Empirical Study from an Emerging Economy”, Journal of Asian Finance, Economics and Business, Vol. 6 No. 1, pp. 59-69.
- Rouf, M.A. (2011), “The relationship between corporate governance and value of the firm in developing countries: evidence from Bangladesh”, The International Journal of Applied Economics and Finance, Vol. 5 No. 3, pp. 237-244.
- Vijayamohanan Pillai, N. (2016). Panel data analysis with Stata Part 1 fixed effects and random effects models. MPRA Paper, 76869.
- Saibaba, M.D., and Ansari, V.A. (2012), “A Study of CEO Duality, Audit Committees and Corporate Governance in Companies Listed in BSE 200 Index”, The IUP Journal of Corporate Governance, Vol. X No. 3, pp. 44-51.
- Saleh, N.M., Takiah, M.I. and Rahmat, M.M. (2007), “Audit committee characteristics and earnings management: evidence from Malaysia”, Asian Review of Accounting, Vol. 15 No. 2, pp. 147-163.
- Salehi, M., Tahervafaei, M. and Tarighi, H. (2017), “The effect of characteristics of audit committee and board on corporate profitability in Iran”, Journal of Economic and Administrative Sciences, Vol. 34 No. 1, 2018, pp. 71-88.
- Salleh N. M. Z., and Haat M.H. (2014), “Audit committee and earnings management: Pre and post MCCG”, International Review of Management and Business Research, Vol. 3 No. 1, pp. 307–318.
- Shorvarzi, M., Khalili, M., Soleimani, H. and Forotan, O. (2015), “Relation between corporate governance and company performance based on fuzzy regression”, Quarterly Journal of Financial Accounting and Auditing Research, Vol. 7 No. 25, pp. 127-145.
- Sultana, N. and Mitchell Van der Zahn, J.L. (2015), “Earnings conservatism and audit committee financial expertise”, Accounting & Finance, Vol. 55 No. 1, pp. 279-310.
- Shah, A., & Khan, S. (2007). Determinants of Capital Structure : Evidence from Pakistani Panel Data. International Review of Business Research Papers, 3(4), 265–282.
- Tornyeva, K. and Wereko, T. (2012), “Corporate governance and firm performance: evidence from the insurance sector of Ghana”, European Journal of Business and Management, Vol. 4 No. 13, pp. 95-112.
- Vafeas, N. (1999), “Board meeting frequency and firm performance”, Journal of Financial Economics, Vol. 53 No. 1, pp. 113-142.
- Xie B., Davidson W.N., DaDalt, P.J. (2003), “Earnings management and corporate governance: The roles of the board and the audit committee”, Journal of Corporate Finance, Vol. 9 No. 3, pp. 295–316.
- Zraiq, M.A., and Fadzil, F.H. (2018), “The impact of audit committee characteristics on firm performance: Evidence from Jordan”, Scholar Journal of Applied Sciences and Research, Vol. 1 No. 5, pp. 39-42.
- Zgarni, I., Hlioui, K. and Zehri, F. (2016), “Effective audit committee, audit quality and earnings management: evidence from Tunisia”, Journal of Accounting in Emerging Economies, Vol. 6 No. 2, pp. 138-155.
- Article View: 79
- PDF Download: 84