Do BIG-4 auditors perform a corporate governance role in the Moroccan context? Evidence from accounting and market-based performance measures.

Abstract

Abstract

The research on external audit quality has attracted flourishing interest from several scholars following financial scandals and corporate failures, Nonetheless, results and empirical findings regarding the effect of audit quality on firm performance are still inconclusive. Our study is designed to investigate the impact of external audit quality on financial performance using both accounting and market-based performance indicators. Based on a sample of 38 listed firms in the Casablanca stock exchange, covering the period 2011-2021, this study employed a pooled OLS model to assess the effect of audit quality on accounting and market-based performance measures. For robustness check, we employed the Feasible Generalized Least Square (FGLS) estimator to account for potential issues of heteroskedasticity and autocorrelation. Our findings support the main hypothesis and the agency's theoretical foundations, indicating that audit brand name reputation and audit quality change exhibit significant positive impacts on financial performance and firm valuation. To the best of our knowledge, our study is the first to examine the effect of audit quality on firm performance and valuation in the Moroccan context and use audit quality change as a robustness proxy for audit quality. Nevertheless, our research suffers from some limitations, related to the methodological approach, possible omissions of some variables, econometric issues related to endogeneity concerns and external validity of our results due to the limited number of observations.

Keywords: Corporate governance, External audit quality, Firm performance, Agency theory, Morocco.