Volume 4, Issue 3, September 2019, Page: 71-83
Impact of Ownership Characteristics on Modified Audit Opinion in Jordan
Saleh Zaid Alkilani, Othman Yeop Abdullah Graduate School of Business, Universiti Utara Malaysia, Sintok, Malaysia
Wan Nordin Wan Hussin, Othman Yeop Abdullah Graduate School of Business, Universiti Utara Malaysia, Sintok, Malaysia
Basariah Salim, Tunku Intan Shafinaz Accounting School, Universiti Utara Malaysia, Sintok, Malaysia
Received: Jun. 7, 2019;       Accepted: Jul. 4, 2019;       Published: Jul. 30, 2019
DOI: 10.11648/j.ijafrm.20190403.11      View  462      Downloads  161
It is well established that ownership characteristics are impacted by the quality of financial reporting. The purpose of this work is to examine the role of ownership characteristics in minimising the prospect of corporates obtaining a modified audit opinion in Jordan. Three ownership characteristics [family ownership (FAOWN), institutional ownership (INOWN) and foreign ownership (FAOWN)] and modified audit opinion were studied. The study used 117 samples of corporates listed on the Amman Stock Exchange (ASE). Logistic regression was employed to analyse the association between the modified audit opinions as a dependent variable and ownership characteristics as independent variables. Ownership characteristics are anticipated to be more successful in improving the quality of financial statement, and thus, reduce the prospect of firm obtaining a modified audit opinion. The analysed results from 2012 to 2016 periods of these corporates in Jordan showed that FAOWN and FOOWN validated this projection. Interestingly, the effect of family and FOOWN improve the quality of financial statement, thereby, reduce the cases of a modified audit opinion. Additionally, the study could not find any association impact between the INOWN and modified audit opinion.
Modified Audit Opinion, Ownership Structure, Family Ownership, Institutional Ownership, Foreign Ownership
To cite this article
Saleh Zaid Alkilani, Wan Nordin Wan Hussin, Basariah Salim, Impact of Ownership Characteristics on Modified Audit Opinion in Jordan, International Journal of Accounting, Finance and Risk Management. Vol. 4, No. 3, 2019, pp. 71-83. doi: 10.11648/j.ijafrm.20190403.11
Copyright © 2019 Authors retain the copyright of this article.
This article is an open access article distributed under the Creative Commons Attribution License (http://creativecommons.org/licenses/by/4.0/) which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.
Firth, M., Fung, P. M., & Rui, O. M. (2007). Ownership, two-tier board structure, and the informativeness of earnings–Evidence from China. Journal of Accounting and Public Policy, 26 (4), 463-496.
Low, P. Y., & Majid, A. (2008). CEO dominance, family control and modified audit opinions in Hong Kong. Corporate ownership and Control, 5 (2), 179-186.
Chan, A. L. C., Ding, R., & Hou, W. (2014). Does mutual fund ownership affect quality of financial reporting for Chinese privately-owned enterprises? International Reopinion of Financial Analysis, 36, 131-140.
Pucheta‐Martínez, M. C., & García‐Meca, E. (2014). Institutional investors on boards and audit committees and their effects on quality of financial reporting. Corporate Governance: An International Reopinion, 22 (4), 347-363.
Alzoubi, E. (2016). Ownership structure and earnings management: Evidence from Jordan. International Journal of Accounting & Information Management, 24 (2), 135-161.
Yasser, Q. R., Mamun, A. A., & Hook, M. (2017). The impact of ownership structure on quality of financial reporting in the east. International Journal of Organizational Analysis, 25 (2), 178-197.
Gaio, C., & Pinto, I. (2018). The role of state ownership on earnings quality: evidence across public and private European firms. Journal of Applied Accounting Research, 19 (2), 312-332.
Tessema, A., Kim, M. S., & Dandu, J. (2018). The impact of ownership structure on earnings quality: The case of South Korea. International Journal of Disclosure and Governance, 15 (3), 129-141.
Al-Fayoumi, N., Abuzayed, B., & Alexander, D. (2010). Ownership structure and earnings management in emerging markets: The case of Jordan. International Research Journal of Finance and Economics, 38 (1), 28-47.
Kinney, W. R., & Martin, R. D. (1994). Does auditing reduce bias in financial reporting? A reopinion of audit-related adjustment studies. Auditing, 13 (1), 149-156.
Francis, J. R., & Wang, D. (2008). The joint effect of investor protection and Big 4 audits on earnings quality around the world. Contemporary Accounting Research, 25 (1), 157-191.
Moalla, H. (2017). Audit report qualification/modification: Impact of financial variables in Tunisia. Journal of Accounting in Emerging Economies, 7 (4), 468-485
Chen, P. F., He, S., Ma, Z., & Stice, D. (2016). The information role of audit opinions in debt contracting. Journal of Accounting and Economics, 61 (1), 121-144.
Chen, F., Peng, S., Xue, S., Yang, Z., & Ye, F. (2016). Do audit clients successfully engage in opinion shopping? Partner‐level evidence. Journal of Accounting Research, 54 (1), 79-112.
Boolaky, P. K., & Quick, R. (2016). Bank directors’ perceptions of expanded auditor's reports. International Journal of Auditing, 20 (2), 158-174.
Caramanis, C., & Lennox, C. (2008). Audit effort and earnings management. Journal of Accounting and Economics, 45 (1), 116-138.
Chen, J., Cumming, D., Hou, W., & Lee, E. (2013). Executive integrity, audit opinion, and fraud in Chinese listed firms. Emerging Markets Reopinion, 15, 72-91.
Habib, A. (2013). A meta-analysis of the determinants of modified audit opinion decisions. Managerial Auditing Journal, 28 (3), 184-216.
DeAngelo, L. E. (1981). Auditor size and audit quality. Journal of Accounting and Economics, 3 (3), 183-199.
Krishnan, J., Krishnan, J., & Stephens, R. G. (1996). The simultaneous relation between auditor switching and audit opinion: An empirical analysis. Accounting and Business Research, 26 (3), 224-236.
Miller, D., Le Breton‐Miller, I., Minichilli, A., Corbetta, G., & Pittino, D. (2014). When do Non‐Family CEO s Outperform in Family Firms? Agency and Behavioural Agency Perspectives. Journal of Management Studies, 51 (4), 547-572.
Hussainey, K., Tahat, Y., & Aladwan, M. (2019). The Impact of Corporate Governance on Risk Disclosure: Jordanian Evidence. Academy of Accounting and Financial Studies Journal, 23 (1).
Mitnick, B. M. (2015). Agency theory. Wiley encyclopedia of management, 1-6.
Harindahyani, S., & Yolino, J. A. (2019). The Role of Firm Ownership Type and Earnings Management on Auditor Choice and Audit Fee of Non-Financial Firms. In Social and Humaniora Research Symposium (SoRes 2018). Atlantis Press.
Jensen, M. C., & Meckling, W. H. (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 3 (4), 305-360.
Al-Sa'eed, M. T. A. (2018). The Impact of Ownership Structure and Dividends on Firm’s Performance: Evidence from Manufacturing Companies Listed on the Amman Stock Exchange. Australasian Accounting, Business and Finance Journal, 12 (3), 87-106.
Abu Qa’dan, M. B., & Suwaidan, M. S. (2019). Board composition, ownership structure and corporate social responsibility disclosure: the case of Jordan. Social Responsibility Journal, 15 (1), 28-46.
El-Habashy, H. A. (2019). The Effects of Board and Ownership Structures on the Performance of Publicly Listed Companies in Egypt. Academy of Accounting and Financial Studies Journal, 23 (1).
Bataineh, H., Abuaddous, M., & Alabood, E. (2018). The Effect of Family Ownership and Board Characteristics on Earnings Management: Evidence from Jordan. Academy of Accounting and Financial Studies Journal.
Saidat, Z., Silva, M., & Seaman, C. (2019). The relationship between corporate governance and financial performance: Evidence from Jordanian family and nonfamily firms. Journal of Family Business Management, 9 (1), 54-78.
Warrad, L., Abed, S., Khriasat, O., & Al-Sheikh, I. (2012). The effect of ownership structure on dividend payout policy: Evidence from Jordanian context. International Journal of Economics and Finance, 4 (2), 187-195.
Zeitun, R., & Gang Tian, G. (2007). Does ownership affect a firm's performance and default risk in Jordan? Corporate Governance: The International Journal of Business in Society, 7 (1), 66-82.
Velury, U., & Jenkins, D. S. (2006). Institutional ownership and the quality of earnings. Journal of Business Research, 59 (9), 1043-1051.
Almutairi, A. (2013). The impact of institutional ownership and corporate debt on audit quality. Journal of Economic and Administrative Sciences, 29 (2), 134-152.
Lassoued, N., Ben Rejeb Attia, M., & Sassi, H. (2017). Earnings management and ownership structure in emerging market: Evidence from banking industry. Managerial Finance, 43 (10), 1117-1136.
Velte, P. (2019). What do we know about meta-analyses in accounting, auditing, and corporate governance?. Meditari Accountancy Research, 27 (1), 17-43.
An, Y. (2015). Does foreign ownership increase quality of financial reporting? Asian Academy of Management Journal, 20 (2), 81-101.
Lee, S., Rhee, M., & Yoon, J. (2018). Foreign monitoring and audit quality: Evidence from Korea. Sustainability, 10 (9), 1-22. doi: 10.3390/su10093151.
Kim, J. B., Pevzner, M., & Xin, X. (2019). Foreign institutional ownership and auditor choice: Evidence from worldwide institutional ownership. Journal of International Business Studies, 50 (1), 83-110.
Sachs, J., & Warner, A. (1995). Economic reform and the process of global integration. Bookings Papers on Economic Activity. Retrieved from https://www.brookings.edu/wp-content/uploads/1995/01/1995a_ bpea_sachs_warner_aslund_fischer.pdf
de Albornoz Noguer, B. G., & Rusanescu, S. (2017). Foreign ownership and quality of financial reporting in private subsidiaries. Working Papers. Serie EC 2017-02. Instituto Valenciano de Investigaciones Económicas, SA (Ivie). Retrieved from https://web2011.ivie.es/downloads/docs/wpasec/wpasec-2017-02.pdf
Al-Thuneibat, A. A., Khamees, B. A., & Al-Fayoumi, N. A. (2007). The effect of qualified auditors' opinions on share prices: Evidence from Jordan. Managerial Auditing Journal, 23 (1), 84-101.
Vichitsarawong, T., & Pornupatham, S. (2015). Do audit opinions reflect earnings persistence? Managerial Auditing Journal, 30 (3), 244-276.
Arfaoui, F., & Damak–Ayadi, S. (2014). The impact of issuing a qualified audit opinion on auditor switching: an empirical study in the Tunisian context. International Journal of Managerial and Financial Accounting, 6 (3), 189-202.
Farinha, J., & Viana, L. F. (2009). Board structure and modified audit opinions: evidence from the Portuguese stock exchange. International Journal of Auditing, 13 (3), 237-258.
.Pedro Sánchez Ballesta, J., & Garcia-Meca, E. (2005). Audit qualifications and corporate governance in Spanish listed firms. Managerial Auditing Journal, 20 (7), 725-738.
Pucheta‐Martínez, M. C., Bel‐Oms, I., & Olcina‐Sempere, G. (2016). Corporate governance, female directors and quality of financial information. Business Ethics: A European Reopinion, 25 (4), 363-385.
Shbeilat, M. K. (2019). International Standard on Auditing No. 260 and Audit Quality: Evidence from Jordan. International Business Research, 12 (4).
Jordanian Companies Law 22. (2017). Available from https://www.sdc.com.jo/english/index.php?option=com_ content&task=opinion&id=254
Alkhatib, K., & Marji, Q. (2012). Audit reports timeliness: Empirical evidence from Jordan. Procedia-Social and Behavioral Sciences, 62, 1342-1349.
Cha, M., Hwang, K., & Yeo, Y. (2016). Relationship between audit opinion and credit rating: Evidence from Korea. Journal of Applied Business Research, 32 (2), 621-634.
Sirois, L. P., Bédard, J., & Bera, P. (2018). The informational value of key audit matters in the auditor's report: Evidence from an eye-tracking study. Accounting Horizons, 32 (2), 141-162.
Fakhfakh, H., & Fakhfakh, M. (2010). The impact of Revised ISA 700: an international empirical comparison. International Journal of Accounting, Auditing and Performance Evaluation, 6 (2-3), 274-326.
Gold, A., Gronewold, U., & Pott, C. (2012). The ISA 700 auditor's report and the audit expectation gap–do explanations matter?. International Journal of Auditing, 16 (3), 286-307.
Downey, D. H., & Bedard, J. C. (2018). Coordination and communication challenges in global group audits. Auditing: A Journal of Practice and Theory, 1-43.
International Auditing and Assurance Standard Board (IAASB). (2009). Audit considerations in respect of going concern in the current economic environment. Available from https://www.ifac.org/publications-resources/staff-audit-practice-alert-audit-considerations-respect-going-concern-current
Fakhfakh, M. (2015). The readability of international illustration of auditor's report: An advanced reflection on the compromise between normative principles and linguistic requirements. Journal of Economics, Finance and Administrative Science, 20 (38), 21-29.
Jordanian Companies Law 22. (1997). Retrieved from http://hammourilaw.com/Hammouri_Resorces/Articals/ Definitions%20and%20General%20Provisions.pdf
Ramalho, J. J. S., Rita, R. M. S. & da Silva, J. V. (2018). The impact of family ownership on capital structure of firms: exploring the role of zero-leverage, size, location and the global financial crisis. International Small Business Journal, 36 (5), 574-604.
Basco, R. (2015). Family business and regional development—A theoretical model of regional familiness. Journal of Family Business Strategy, 6 (4), 259-271.
Al-matarneh, G. F. (2012). The extent of adherence of Jordanian auditors in implementing the international standard on auditing ISA 700. International Management Reopinion, 7 (1), 22-29.
Miller, D., Le Breton‐Miller, I., & Scholnick, B. (2008). Stewardship vs. stagnation: An empirical comparison of small family and non‐family businesses. Journal of Management Studies, 45 (1), 51-78.
Revilla, A. J., Pérez-Luño, A., & Nieto, M. J. (2016). Does family involvement in management reduce the risk of business failure? The moderating role of entrepreneurial orientation. Family Business Reopinion, 29 (4), 365-379.
Shyu, J. (2011). Family ownership and firm performance: Evidence from Taiwanese firms. International Journal of Managerial Finance, 7 (4), 397-411.
Fama, E. F., & Jensen, M. C. (1983). Separation of ownership and control. The Journal of Law and Economics, 26 (2), 301-325.
Wang, J., & Song, L. (2006). Timeliness of annual reports of Chinese listed companies. Journal of Chinese Economic and Business Studies, 4 (3), 241-257.
Tong, Y. H. (2007). Financial reporting practices of family firms. Advances in Accounting, 23, 231-261.
Ali, A., Chen, T. Y., & Radhakrishnan, S. (2007). Corporate disclosures by family firms. Journal of Accounting and Economics, 44 (1-2), 238-286.
Cascino, S., Pugliese, A., Mussolino, D., & Sansone, C. (2010). The influence of family ownership on the quality of accounting information. Family Business Reopinion, 23 (3), 246-265.
Lourenço, I., Branco, M., & Dias Curto, J. (2018). Timely reporting and family ownership: The Portuguese case. Retrieved from http://www.centrobaffi.unibocconi.it/wps/allegatiCTP/Timely%20reporting%20 and%20family%20ownership_1.pdf
Ho, J. L., & Kang, F. (2013). Auditor choice and audit fees in family firms: Evidence from the S&P 1500. Auditing: A Journal of Practice & Theory, 32 (4), 71-93.
Martínez, J. I., Stöhr, B. S., & Quiroga, B. F. (2007). Family ownership and firm performance: Evidence from public companies in Chile. Family Business Reopinion, 20 (2), 83-94.
Al-Dubai, S., Ismail, K., Izah, K. N., & Amran, N. A. (2014). Family involvement in ownership, management, and firm performance: Moderating and direct-effect models. Asian Social Science, 10 (14), 193-205.
Hiebl, M. R. (2012). Peculiarities of financial management in family firms. The International Business & Economics Research Journal (Online), 11 (3), 315-322.
Lago-Peñas, S., Álvarez-Santullano, M. M., Rivo-López, E., & Villanueva-Villar, M. (2017). Determining factors for audit opinion in private family and non-family firms. Evidence from Spain (No. 1701). Universidade de Vigo, GEN-Governance and Economics research Network. Retrieved from http://infogen.webs.uvigo.es/WPC/WP1701.pdf
Jiraporn, P., & DaDalt, P. J. (2009). Does founding family control affect earnings management? Applied Economics Letters, 16 (2), 113-119.
Hashmi, M. A., Brahmana, R. K., & Lau, E. (2018). Political connections, family firms and earnings quality. Management Research Reopinion, 41 (4), 414-432.
Kazemian, S., & Sanusi, Z. M. (2015). Earnings management and ownership Structure. Procedia Economics and Finance, 31, 618-624.
Alves, S. (2012). Ownership structure and earnings management: Evidence from Portugal. Australasian Accounting. Business and Finance Journal, 6 (1), 57-74.
Kouaib, A., & Jarboui, A. (2014). External audit quality and ownership structure: interaction and impact on earnings management of industrial and commercial Tunisian sectors. Journal of Economics Finance and Administrative Science, 19 (37), 78-89.
Chan, K. H., Lin, K. Z., & Zhang, F. (2007). On the association between changes in corporate ownership and changes in auditor quality in a transitional economy. Journal of International Accounting Research, 6 (1), 19-36.
Mitra, S., Hossain, M., & Deis, D. R. (2007). The empirical relationship between ownership characteristics and audit fees. Reopinion of Quantitative Finance and Accounting, 28 (3), 257-285.
Soliman, M., & Elsalam, M. (2013). Corporate governance practices and audit quality: An empirical study of the listed companies in Egypt. World Academy of Science, Engineering, and Technology, 71, 1292-1297. Available from https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2257815
Ajay, R., & Madhumathi, R. (2015). Institutional ownership and earnings management in India. Indian Journal of Corporate Governance, 8 (2), 119-136.
Klapper, L. F., Laeven, L., & Love, I. (2006). What drives corporate governance? Firm – level evidence from Eastern Europe. World Bank Policy Research Working Paper Series No. 3600. Retrieved from http://documents.worldbank.org/curated/en/813551468299116185/pdf/wps3600.pdf
Waweru, N. (2014). Determinants of quality corporate governance in Sub-Saharan Africa: Evidence from Kenya and South Africa. Managerial Auditing Journal, 29 (5), 455-485.
Aggarwal, R., Erel, I., Ferreira, M., & Matos, P. (2011). Does governance travel around the world? Evidence from institutional investors. Journal of Financial Economics, 100 (1), 154-181.
Ferreira, M. A., & Matos, P. (2008). The colors of investors’ money: The role of institutional investors around the world. Journal of Financial Economics, 88 (3), 499-533.
Beuselinck, C., Blanco, B., & García Lara, J. M. (2017). The role of foreign shareholders in disciplining financial reporting. Journal of Business Finance & Accounting, 44 (5-6), 558-592.
Beuselinck, C., Blanco, B., & Garcia Lara, J. M. (2013). The role of foreign shareholders in disciplining financial reporting. IESEG School of Management. Lille Catholic University 3, Lille, France. Paper retrieved from http://www. ieseg. fr/w p-content/uploads/2013-MAN-07_Beuselinck. pdf.
Nelson, S. P., & Mohamed-Rusdi, N. F. (2015). Ownership structures influence on audit fee. Journal of Accounting in Emerging Economies, 5 (4), 457-478.
Alzeaideen, K. A., & Al-Rawash S. Z. (2018). The effect of ownership structure and corporate debt on audit quality: Evidence from Jordan. International Journal of Economics and Financial Issues, 8 (3), 51-58.
Guo, J., Huang, P., Zhang, Y., & Zhou, N. (2015). Foreign ownership and real earnings management: Evidence from Japan. Journal of International Accounting Research, 14 (2), 185-213.
Hashim, J. B. (2017). Does ownership characteristics have any impact on audit report lag? Evidence of Malaysian listed companies. World Applied Sciences Journal, 35 (9).
Alzoubi, E. S. S. (2018). Audit quality, debt financing, and earnings management: Evidence from Jordan. Journal of International Accounting, Auditing and Taxation, 30 (C), 69-84.
Alzoubi, E. S. S. (2019). Audit committee, internal audit function and earnings management: evidence from Jordan. Meditari Accountancy Research, 27 (1), 72-90.
Alabdullah, T. T. Y., Yahya, S., & Ramayah, T. (2014). Corporate governance mechanisms and Jordanian companies' financial performance. Asian Social Science, 10 (22), 247-262.
Idris, M., Siam, Y. A., & Nassar, M. (2018). Board independence, earnings management and the moderating effect of family ownership in Jordan. Management & Marketing, 13 (2), 985-994.
Midi, H., Sarkar, S. K., & Rana, S. (2010). Collinearity diagnostics of binary logistic regression model. Journal of Interdisciplinary Mathematics, 13 (3), 253-267.
Makhlouf, M. H., Ali, N. H. L. M. Y., & Ramli, B. N. A. (2017). Board of directors’ effectiveness and firm performance: Evidence from Jordan. Research Journal of Finance and Accounting, 8 (18), 23-34.
Abdoli, M., & Pourkazemi, A. (2014). Effect of executive board and family control on audit opinion. African Journal of Business Management, 8 (18), 810-815.
Tsipouridou, M., & Spathis, C. (2014). Audit opinion and earnings management: Evidence from Greece. Accounting Forum, 38 (1), 38-54.
Ishak, S., Yusof, M., & Atef, M. (2013). The formation of separate risk management committee and the effect on modified audit report. Malaysian Management Journal (MMJ), 17, 43-58.
Johl, S., Subramaniam, N., & Zain, M. M. (2012). Audit committee and CEO ethnicity and audit fees: some Malaysian evidence. The International Journal of Accounting, 47 (3), 302-332.
Malek, M., Ahmad, A. C., & Malek, S. (2012). The effect of director-auditor link on non-audit services fee. In Corporate Governance Practices in Malaysia (pp. 158-176). Selangor, Malaysia: Universiti Malaysia Press.
Obaidat, A. N. (2007). Auditors compliance with international standards on auditing (ISAs): Evidence form Jordan. Journal of Social Sciences, 3 (4), 185-189.
Hodgdon, C., Tondkar, R. H., Adhikari, A., & Harless, D. W. (2009). Compliance with International Financial Reporting Standards and auditor choice: New evidence on the importance of the statutory audit. The International Journal of Accounting, 44 (1), 33-55.
Bédard, J., Coram, P., Espahbodi, R., & Mock, T. J. (2016). Does recent academic research support changes to audit reporting standards?. Accounting Horizons, 30 (2), 255-275.
Alsaeed, K. (2006). The association between firm-specific characteristics and disclosure: The case of Saudi Arabia. Managerial Auditing Journal, 21 (5), 476-496.
Pucheta‐Martínez, M. C., & De Fuentes, C. (2007). The impact of audit committee characteristics on the enhancement of the quality of financial reporting: An empirical study in the Spanish context. Corporate Governance: An International Reopinion, 15 (6), 1394-1412.
Lawrence, A., Minutti-Meza, M., & Zhang, P. (2011). Can Big 4 versus non-Big 4 differences in audit-quality proxies be attributed to client characteristics? The Accounting Reopinion, 86 (1), 259-286.
Zhang, J. H. (2012). Accounting comparability, audit effort and audit outcomes. Contemporary Accounting Research, 35 (1), 245-276.
Wu, C. Y. H., Hsu, H. H., & Haslam, J. (2016). Audit committees, non-audit services, and auditor reporting decisions prior to failure. The British Accounting Reopinion, 48 (2), 240-256.
Fang, J., Haw, I.‐M., Yu, V., & Zhang, X. (2014). Positive externality of analyst coverage upon audit services: Evidence from China. Asia Pacific Journal of Accounting & Economics, 21(2), 186–206.
Rodgers, W., Guiral, A., & Gonzalo, J. A. (2019). Trusting/Distrusting Auditors’ Opinions. Sustainability, 11(6), 1666.
Browse journals by subject