How Audit Quality Affects Bank Performance and Stability with Moderating Role of Ownership Structure

Abstract

This study examines the impact of audit quality on bank performance and stability,
considering ownership structure. Analyzing BR/CS economies and Pakistan from 2010 to
2020, it finds that audit quality positively affects bank performance and stability. Foreign
ownership moderates this relationship, while public ownership does not. These findings
inform policymakers and regulators in promoting high-quality auditing practices and
improving bank stability and performance. Audit quality is a crucial factor in maintaining the
financial success and stability of banks, contributing to improved performance and
transparency. Foreign ownership has a significant and positive moderating effect on the
relationship between audit quality and bank performance and stability. The findings have
implications for policymakers and regulators in implementing policies that promote high-quality auditing practices and enhance the stability and performance of banks in BR/CS
economies and Pakistan. The current research focuses on the moderating role of ownership
structure in the relationship between bank profitability, audit quality, and performance in
BR/CS countries and Pakistan, which is a novel approach. The global financial crisis of
2007-2008 highlighted the importance of audit committees in overseeing financial institutions
and enforcing regulations and standards. Emerging economies like BR/CS face unique
challenges due to weaker regulatory structures, less mature financial systems, and higher
levels of debt. Long-term stability of banks is crucial for the overall economic system and the
incidence of financial fraud and bankruptcies affects investor confidence and economic
growth.