The impact of the COSO control components on the financial performance in the Jordanian banks and the moderating effect of board independence

Aiman M. Abu Hamour, Deema Daifalleh Mohammed Massadeh and Mohamed Mahmoud Bshayreh

Journal of Sustainable Finance & Investment, 2023, vol. 13, issue 1, 161-175

Abstract: The study aims to investigate the moderating effect of the board independence on the COSO components (Control Environment, Risk Assessment, Information and Communication, Control Activities and Monitoring), and the financial performance in the Jordanian banks. This paper used 109 usable questionnaires from financial managers, internal control managers and internal Auditors and the secondary data of the Jordanian banks reports. The collected data were analyzed utilizing Statistical Package for the Social Sciences. The study shows new findings and unique contribution to the impact of COSO components on the financial performance of Jordanian banks; the results show a positive relationship between COSO’s components and financial performance (ROI, ROE). It also presented a statistically significant impact of two components (Control Activities and Control Environment) on ROI. In addition, the study showed that the association between COSO control components and the financial performance is positively moderated by board independence. This study provides a unique contribution to other studies of the impact internal control systems based on the COSO components control and their impact on the financial performance, as well as the moderator effect (board independence) on this relationship in the Jordanian banks. The results of the study support the agency’s theory in which the level of financial performance satisfactory to shareholders will reduce the agency’s problem and costs, and thus a new scientific shareholder path added to accounting literature that explains the relationships and impacts between COSO.

Date: 2023
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DOI: 10.1080/20430795.2021.1886553

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