Audit Quality in Market Perspective: A Study on the Value of Indonesian Firms
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Purpose: To analyze the relationship established between audit quality, auditor independence, auditor competence, firm size, leverage, profitability, and the firm value. With this approach, the next step was to determine how these will affect the perception of the investor and the financial performance of listed companies in Indonesia. Design/methodology/approach: This research implement 500 f irms in I ndonesia and use multiple regression to analyze the effect of audit quality, independence, competence, size, leverage, and profitability against firm value. Findings: The results show that audit quality, auditor independence, and auditor competence positively and significantly affect the value of the firm Furthermore, size and profitability have direct relationship to firm value, meanwhile, leverage inversely affect firm value. This also underscores the need and value of high-quality audits and good financial governance for strengthening investor confidence and boosting market valuations. The study further confirms that higher-quality audits benefit larger firms more as these firms have greater exposure to the market and most complex governance structures. Research limitations/implications: This research only provides information about the existence of a positive relationships between audit quality and firm value in Indonesia. The findings may have limited generalizability to other regions or industries. Future works can expand on the effect of other exogenous factors, climate and economic sentiments as well as regulatory changes on audit quality-value relationship. Originality/value: This paper offers empirical data from an emerging market perspective (Indonesia) to enhance the extant literature. It also emphasizes the important role of higher quality audit in firm value enhancement and the essential functions of auditor independence and competence. The results have practical implications for corporate governance and investor decision-making.
Abstract
Purpose: To analyze the relationship established between audit quality, auditor independence, auditor competence, firm size, leverage, profitability, and the firm value. With this approach, the next step was to determine how these will affect the perception of the investor and the financial performance of listed companies in Indonesia. Design/methodology/approach: This research implement 500 f irms in I ndonesia and use multiple regression to analyze the effect of audit quality, independence, competence, size, leverage, and profitability against firm value. Findings: The results show that audit quality, auditor independence, and auditor competence positively and significantly affect the value of the firm Furthermore, size and profitability have direct relationship to firm value, meanwhile, leverage inversely affect firm value. This also underscores the need and value of high-quality audits and good financial governance for strengthening investor confidence and boosting market valuations. The study further confirms that higher-quality audits benefit larger firms more as these firms have greater exposure to the market and most complex governance structures. Research limitations/implications: This research only provides information about the existence of a positive relationships between audit quality and firm value in Indonesia. The findings may have limited generalizability to other regions or industries. Future works can expand on the effect of other exogenous factors, climate and economic sentiments as well as regulatory changes on audit quality-value relationship. Originality/value: This paper offers empirical data from an emerging market perspective (Indonesia) to enhance the extant literature. It also emphasizes the important role of higher quality audit in firm value enhancement and the essential functions of auditor independence and competence. The results have practical implications for corporate governance and investor decision-making.