Board Leadership Structure, Audit Committee and Audit Quality: Evidence from Manufacturing Companies in Sri Lanka

Thirunavukarasu Velnampy, Nadarajah Sivathaasan, Rajalingam Tharanika, Muthulingam Sinthuja


Purpose: This paper aims to analyze whether the corporate governance attributes such as board leadershipstructure, audit committee meetings held, size of independent non-executive directors and size of non-executivedirectors have significant impact on audit quality of manufacturing companies listed on Colombo Stock Exchange,Sri Lanka during 2011 to 2013.

Research Design: The study takes 32 manufacturing companies listed in Sri Lanka out of 36 as sample andemploys binary logistic regression method for modeling the association between a binary dependent variable suchas audit quality and multiple independent variables such as board leadership structure, audit committee meetingsheld, size of independent non-executive directors, and size of non-executive directors.

Findings: The study finds the logistic regression model for overall evaluation, statistical tests of individualpredictors and goodness-of-fit. As per the output, Hosmer and Lemeshow test reveals the model for goodness offit with chi-square of 17.503 and with probability value of 0.008, which is significant at five percent levels. Cox &Snell R Square reveal 56.2 % of the variance in audit quality. Whereas board leadership structure and auditcommittee meetings held have significant relationship with audit quality, size of non-executive directors and sizeof independent non-executive directors have shown insignificant association.

Research Limitation-As sample size is relatively small, there may be a challenge to generalize the results ofthis study widely.

Originality-This research contributes to the literature by adding the significant association between somecorporate governance variables and audit quality. The findings from this research could be generalized to thecompanies similar to this category.

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