Evaluation of ownership structure and audit-quality in the wake of the Covid-19 crisis: empirical evidence from Jordan

Abstract

Purpose This study aims to collect new empirical evidence to determine how different forms of ownership structure responded to the recent COVID-19 crisis. In light of this tragedy, it explores the relationship between ownership structure forms (i.e. block-holders, foreign, institutional and family ownerships) and audit quality (proxied by audit fees). Design/methodology/approach In total, 3,200 firm-year observations for Jordanian enterprises covering the years 2005 through 2020 are used in an ordinary least squares regression with firm-clustered standard error to assess the hypotheses. Findings The regression results showed that COVID-19 strengthens the association between each type of ownership (i.e. block-holders, foreign, institutional ownership forms) and audit quality. This result reflects the need for high-quality audit services during the pandemic by such owners to improve their business decisions and limit agency-conflict issues. However, the analysis failed to find any effect of COVID-19 when it comes to family ownership. Family-controlled firms may react faster in crisis situations, and correspondingly, they do not bear high audit costs. The extended analysis covering the years 2005–2022 came to the same results. Practical implications The results aid authorities in their control and management of the auditing business. The findings have important consequences for policymakers, lawmakers, regulators and the audit profession as they assess the growing issues in an uncertain economic environment. Evidence is provided that may be used to reassure investors and aid authorities as they devise appropriate remedies to the pandemic-triggered economic crisis. The findings may aid in the improvement of legislation that governs Jordan’s auditing industry. Furthermore, the results can be generalized to other Middle Eastern countries. Originality/value To the best of the authors’ knowledge, this is the first study to empirically evaluate how different types of ownership affect audit quality in response to a dramatic shift in auditors’ working conditions brought on by the global health calamity. In emerging economies like Jordan, this type of analysis allows for preliminary assumptions to be established about ownership status during the COVID-19 outbreak. It adds to the body of auditing knowledge by shedding light on how various kinds of ownership affect responses to adverse events. This assessment is intended to serve as the definitive testimony in the field of accounting regarding the effects of the coronavirus across various corporations’ portfolios.