The Power of Political Connections: Review on the Impacts of Audit Committee and Corporate Governance

Nurul Nazlia Jamil


In this paper, the study summarizes the major studies addressing on the power of political connections that have impacts on the role of audit committees and corporate governance in the companies. The question addressed by this paper is how the political connections and audit committee role may influence the corporate governance variables as reflected in audit fees and corporate governance behavior through auditor’s assessment process. This is what has been lacking in the literatures.This paper is an attempt to identify the gaps and contribute to the political connections and corporate governance literature by showing the political connection influences on audit committee especially in an economy in which the government has coercive power in the firms. In the different context, the paper provides avenue to potential research to understand firm’s agency conflicts between the majority shareholder and the management as well as political connections that providing external resources to the firms affect auditor’s decision on audit fees, audit plan and assessment process and audit opinions.

Full Text:



Abbott, L. J., Parker, S., Peters, G. F., & Raghunandan, K. (2003). An Empirical Investigation of Audit Fees, Nonaudit Fees, and Audit Committees*. Contemporary Accounting Research, 20(2), 215-234.

Agrawal, A., & Knoeber, C. R. (2000). Do some outside directors play a political role? Available at SSRN 224133.

Agrawal, A., & Knoeber, C. R. (2012). Corporate governance and firm performance.

Ball, R., Robin, A., & Wu, J. S. (2003). Incentives versus standards: properties of accounting income in four East Asian countries. Journal of Accounting and Economics, 36(1-3), 235-270.

Balsam, S., Krishnan, J., & Yang, J. S. (2003). Auditor industry specialization and earnings quality. AUDITING: A Journal of Practice & Theory, 22(2), 71-97.

Bank, W. (2006). Held by the visible hand. The challenge of SOE corporate governance for emerging markets. The World Bank Corporate Governance Department. Washington, DC.

Bedard, J. C., & Johnstone, K. M. (2004). Earnings Manipulation Risk, Corporate Governance Risk, and Auditors' Planning and Pricing Decisions. The Accounting Review, 79(2), 277-304.

Bushman, R. M., Piotroski, J. D., & Smith, A. J. (2004). What determines corporate transparency? Journal of Accounting Research, 42(2), 207-252.

Cadbury, A. (1992). Cadbury report: The financial aspects of corporate governance. Tech reprt, HMG, London.

Caramanis, C., & Lennox, C. (2008). Audit effort and earnings management. Journal of Accounting and Economics, 45(1), 116-138.

Carcello, J. V., Hermanson, D. R., Neal, T. L., & Riley, R. A. (2002). Board Characteristics and Audit Fees*. Contemporary Accounting Research, 19(3), 365-384.

Chaney, P. K., Faccio, M., & Parsley, D. (2011). The quality of accounting information in politically connected firms. Journal of Accounting and Economics, 51(1-2), 58-76.

Chen, C. J. P., Chen, S., & Su, X. (2001). Profitability Regulation, Earnings Management, and Modified Audit Opinions: Evidence from China. AUDITING: A Journal of Practice & Theory, 20(2), 9-30.

Chizema, A., Liu, X., Lu, J., & Gao, L. (2015). Politically connected boards and top executive pay in Chinese listed firms. Strategic Management Journal, 36(6), 890-906.

Choi, J.-H., Kim, C., Kim, J.-B., & Zang, Y. (2008). Audit Office Size, Audit Quality, and Audit Pricing. AUDITING: A Journal of Practice & Theory, 29(1), 73-97.

Clarkson, P. M., & Simunic, D. A. (1994). The association between audit quality, retained ownership, and firm-specific risk in US vs. Canadian IPO markets. Journal of Accounting and Economics, 17(1), 207-228.

Cohen, J. R., Krishnamoorthy, G., & Wright, A. (2004). The corporate governance mosaic and financial reporting quality. Journal of accounting literature, 87-152.

Craswell, A. T., Francis, J. R., & Taylor, S. L. (1995). Auditor brand name reputations and industry specializations. Journal of Accounting and Economics, 20(3), 297-322.

De Vlaminck, N., & Sarens, G. (2015). The relationship between audit committee characteristics and financial statement quality: evidence from Belgium. Journal of Management & Governance, 19(1), 145-166.

DeAngelo, L. E. (1981). Auditor size and audit quality. Journal of Accounting and Economics, 3(3), 183-199.

DeFond, M. L., Francis, J. R., & Wong, T. J. (2000). Auditor industry specialization and market segmentation: Evidence from Hong Kong. AUDITING: A Journal of Practice & Theory, 19(1), 49-66.

Deis, D. R., & Giroux, G. (1996). The effect of auditor changes on audit fees, audit hours, and audit quality. Journal of Accounting and Public Policy, 15(1), 55-76.

DeZoort, F. T., & Lord, A. T. (1997). A review and synthesis of pressure effects research in accounting. Journal of accounting literature, 16, 28.

Faccio, M., Masulis, R. W., & McConnell, J. (2006). Political connections and corporate bailouts. The Journal of Finance, 61(6), 2597-2635.

Falk, H., Lynn, B., Mestelman, S., & Shehata, M. (2000). Auditor independence, self-interested behavior and ethics: some experimental evidence. Journal of Accounting and Public Policy, 18(4), 395-428.

Fan, J., & Wong, T. (2001). The governance role of auditors in emerging markets: Evidence from East Asia. Working Paper.

Fan, J. P. H., & Wong, T. J. (2005). Do External Auditors Perform a Corporate Governance Role in Emerging Markets? Evidence from East Asia. Journal of Accounting Research, 43(1), 35-72.

Ferguson, A., & Stokes, D. (2002). Brand Name Audit Pricing, Industry Specialization, and Leadership Premiums post‐Big 8 and Big 6 Mergers*. Contemporary Accounting Research, 19(1), 77-110.

Ferguson, T., & Voth, H.-J. (2008). Betting on Hitler: the value of political connections in Nazi Germany. The Quarterly Journal of Economics, 101-137.

Fisman, R. (2001). Estimating the value of political connections. American Economic Review, 1095-1102.

Gibbins, M., Webb, A., & Salterio, S. (2000). Evidence about auditor-client management negotiation concerning client's financial reporting. Available at SSRN 259304.

Gomez, E. T., & Jomo, K. S. (1997). Malaysia's Political Economy: Politics. Patronage and Profits.

Goodwin‐Stewart, J., & Kent, P. (2006). The use of internal audit by Australian companies. Managerial Auditing Journal, 21(1), 81-101.

Gul, F. A., & Tsui, J. S. (2001). Free cash flow, debt monitoring, and audit pricing: Further evidence on the role of director equity ownership. AUDITING: A Journal of Practice & Theory, 20(2), 71-84.

Haniffa, R., Yatim, P., Kent, P., & Clarkson, P. (2006). Governance structures, ethnicity, and audit fees of Malaysian listed firms. Managerial Auditing Journal, 21(7), 757-782.

Hanousek, J., Kočenda, E., & Svejnar, J. (2007). Origin and concentration.Economics of Transition, 15(1), 1-31.

Hay, D., Knechel, W. R., & Ling, H. (2008). Evidence on the impact of internal control and corporate governance on audit fees. International Journal of Auditing, 12(1), 9-24.

Jamil, N. N., & Nelson, S. P. (2011). An Investigation on the Audit Committees Effectiveness: The Case for GLCs in Malaysia. Gadjah Mada International Journal of Business, 13(3).

Jamil, N. N. (2017). Economic role of politics and corporate governance: reforms captured in Malaysia’s setting. International Journal of Law and Management.

Jamil, N. N. (2018). The Effects of Politically Connected Audit Committees on the Audit Process: Evidence in Malaysia. International Journal of Business and Applied Social Science (IJBASS), 4(8).

Johnson, S., & Mitton, T. (2003). Cronyism and capital controls: evidence from Malaysia. Journal of Financial Economics, 67(2), 351-382.

Johnstone, K. M., & Muzatko, S. R. (2002). Resolving difficult accounting issues: A case study in client-auditor interaction. Issues in Accounting Education, 17(1), 27-39.

Karim, K., Robin, A., & Suh, S. (2015). Board Structure and Audit Committee Monitoring: Effects of Audit Committee Monitoring Incentives and Board Entrenchment on Audit Fees. Journal of Accounting, Auditing & Finance.

Krishnan, G. V., & Visvanathan, G. (2007). Does the SOX definition of an accounting expert matter? The association between audit committee directors' accounting expertise and accounting conservatism. Available at SSRN 866884.

Leuz, C., & Oberholzergee, F. (2006). Political relationships, global financing, and corporate transparency: Evidence from Indonesia☆. Journal of Financial Economics, 81(2), 411-439.

Lisic, L. L., Myers, L. A., Seidel, T. A., & Zhou, J. (2019). Does audit committee accounting expertise help to promote audit quality? Evidence from auditor reporting of internal control weaknesses. Contemporary Accounting Research, 36(4), 2521-2553.

Menozzi, A., Erbetta, F., Fraquelli, G., & Vannoni, D. (2014). The determinants of board compensation in SOEs: an application to Italian local public utilities. Applied Financial Economics, 24(3), 145-159.

Messier Jr, W. F., & Austen, L. A. (2000). Inherent risk and control risk assessments: Evidence on the effect of pervasive and specific risk factors. AUDITING: A Journal of Practice & Theory, 19(2), 119-131.

Mian, A. R., & Khwaja, A. I. (2004). Do lenders favor politically connected firms? Rent provision in an emerging financial market. Rent Provision in an Emerging Financial Market (December 2004).

Micco, A., Panizza, U., & Yanez, M. (2007). Bank ownership and performance. Does politics matter?. Journal of Banking & Finance, 31(1), 219-241.

Murnighan, J. K., & Bazerman, M. H. (1990). A perspective on negotiation research in accounting and auditing. Accounting Review, 642-657.

Muslih, M. (2020). The Role of the Audit Committee On the Performance of Indonesian State-Owned Enterprises (BUMN) Registered on the Indonesia Stock Exchange. International Journal of Contemporary Accounting, 1(2), 131-146.

Neal, T. L., Hermanson, D. R., Carcello, J. V., & Beasley, M. S. (2009). The Audit Committee Oversight Process. Contemporary Accounting Research, 26(1), 65-122.

Nee, V., Opper, S., & Wong, S. M. (2007). Politicized capitalism: developmental state and the firm in China. On capitalism, 93-127.

Neu, D., Everett, J., & Rahaman, A. S. (2013). Internal Auditing and Corruption within Government: The Case of the Canadian Sponsorship Program. Contemporary Accounting Research, 30(3), 1223-1250.

Niessen, A., & Ruenzi, S. (2010). Political connectedness and firm performance: Evidence from Germany. German Economic Review, 11(4), 441-464.

Norman, C. S., Rose, A. M., & Rose, J. M. (2010). Internal audit reporting lines, fraud risk decomposition, and assessments of fraud risk. Accounting, Organizations and Society, 35(5), 546-557.

O’Sullivan, N. (2000). The Impact of Board Composition and Ownership on Audit Quality: Evidence from Large Uk Companies. The British Accounting Review, 32(4), 397-414.

Palmrose, Z.-V. (1986). Audit fees and auditor size: Further evidence. Journal of Accounting Research, 97-110.

Peasnell, K. V., Pope, P. F., & Young, S. (2000). Accrual Management to Meet Earnings Targets: Uk Evidence Pre- and Post-Cadbury. The British Accounting Review, 32(4), 415-445.

Ponemon, L. A., & Gabhart, D. R. (1990). Auditor independence judgments: A cognitive‐developmental model and experimental evidence*. Contemporary Accounting Research, 7(1), 227-251.

Riahi-Belkaoui, A. (2004). Politically-Connected Firms: Are They Connected to Earnings Opacity? Research in Accounting Regulation, 17, 25-38.

Roussy, M. (2013). Internal auditors’ roles: From watchdogs to helpers and protectors of the top manager. Critical Perspectives on Accounting, 24(7-8), 550-571.

Shafer, W. E., Morris, R. E., & Ketchand, A. A. (2001). Effects of personal values on auditors' ethical decisions. Accounting, Auditing & Accountability Journal, 14(3), 254-277.

Simpson, W. G., & Gleason, A. E. (1999). Board structure, ownership, and financial distress in banking firms. International Review of Economics & Finance, 8(3), 281-292.

Simunic, D. A. (1980). The pricing of audit services: Theory and evidence. Journal of Accounting Research, 161-190.

Thorne, L., & Hartwick, J. (2001). The Directional Effects of Discussion on Auditors' Moral Reasoning*. Contemporary Accounting Research, 18(2), 337-361.

Trompeter, G. (1994). The effect of partner compensation schemes and generally accepted accounting principles on audit partner judgment. Auditing, 13(2), 56.

Tsui, J. S., Jaggi, B., & Gul, F. A. (2001). CEO domination, growth opportunities, and their impact on audit fees. Journal of Accounting, Auditing & Finance, 16(3), 189-208.

Turley, S., & Zaman, M. (2007). Audit committee effectiveness: informal processes and behavioural effects. Accounting, Auditing & Accountability Journal, 20(5), 765-788.

Vinten, G., & Van Peursem, K. (2005). Conversations with internal auditors: The power of ambiguity. Managerial Auditing Journal, 20(5), 489-512.

Wahab, E. A. A., Zain, M. M., James, K., & Haron, H. (2009). Institutional investors, political connection and audit quality in Malaysia. Accounting Research Journal, 22(2), 167-195.

Watkins, A. L., Hillison, W., & Morecroft, S. E. (2004). Audit quality: A synthesis of theory and empirical evidence. Journal of accounting literature, 23, 153.

Zalailah, S., Jenny, S., & Stuart, M. (2006). The impact of board composition and ethnicity on audit quality: Evidence from Malaysian companies.


Copyright (c) 2020 Nurul Nazlia Jamil

Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.

Journal of Public Administration and Governance  ISSN 2161-7104


Copyright © Macrothink Institute

To make sure that you can receive messages from us, please add the '' domain to your e-mail 'safe list'. If you do not receive e-mail in your 'inbox', check your 'bulk mail' or 'junk mail' folders.