On the independence of audit committee in developing countries: evidence from Jordan

Abstract

PurposeThis study aims to investigate the extent to which audit committee (AC) members who are formally independent are truly independent in practice, and what challenges they face that undermine their independence.Design/methodology/approachThe study utilizes semi-structured interviews with 18 members of the AC in Jordan.FindingsThe responses indicate that AC is mostly labelled as independent but fails to play an effective monitoring role due to different institutional factors. These factors include family ownership, government ownership, culture, compensation package and the lack of qualified directors.Research limitations/implicationsThis research addresses this gap by presenting qualitative evidence from a civil law jurisdiction, featured by a developing financial market, a prevalence of family businesses, limited investor protection and a low risk of litigation. Additionally, this study aims to rectify the current imbalance between qualitative and quantitative studies on AC and bridge the gap between research conducted in developed countries and their developing counterparts.Practical implicationsThis study offers valuable insights for regulatory authorities to engage in a more profound contemplation of extant governance regulations. Also, this study offers useful feedback for nomination committees of public companies, and it also has an implication for shareholders as they rely on independent directors to protect their investment. Furthermore, implications of the findings derived from this research possess the potential for generalization to other developing nations characterized by akin institutional contexts, notably encompassing the countries situated in the Middle East and North Africa (MENA) region.Originality/valueThis research introduces novel qualitative empirical evidence from a distinctive jurisdiction governed by civil law, thereby enriching the existing scholarly discourse. It also contributes to the AC literature by suggesting that it is not only the existence of conventionally independent ACs that affect the integrity of financial statements, but also the absence of social ties and other contextual obstacles.