Abstract:
The aim of this study is to investigate the corporate governance role of
external audits in Sri Lanka as an emerging market context. Using a
sample of Sri Lankan firms, the paper uses regression analysis techniques
to test the corporate governance (i.e., block ownership, family ownership,
insider ownership, board size) and qualified opinion (indicating whether
the firm receives qualified opinion). The empirical evidence indicates that
ownership concentration (i.e., block ownership, family ownership, insider
ownership) provides better corporate governance leading to higher
quality financial reporting and therefore, less likelihood of receiving
qualified audit reports. Whilst, board size is insignificantly positively
related to audit qualifications implying that possibility of receiving an
audit qualification. These findings provide Sri Lankan listed firms with
an insight on how to improve/practice their financial reporting quality
and audit mechanisms. These results can also serve as a useful reference
for firms and the academics concerning future strategies and decision
making.
