Board co-option and audit quality: Evidence from US

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

International Review of Financial Analysis, 2025, vol. 102, issue C

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.

Keywords: Board co-option; Audit quality; BIG4; Corporate governance; Governance mechanism (search for similar items in EconPapers)
JEL-codes: G34 H83 M42 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:102:y:2025:i:c:s1057521925002108

DOI: 10.1016/j.irfa.2025.104123

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