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The Effects of CG and Firms Performance on Audit Risks

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The Effects of CG and Firms Performance on Audit Risks
Methodology
Data, Empirical Design, and Variable Measurement
Our model is an adaptation of McKnight and Weir (2008) on the agency cost, corporate
governance mechanism and ownership structures. In particular, corporate governance is designed
to fit into the unique nature of the business, which is normally established at the value
maximizing point (Mc Connell, 2002). Weir and Laing (2000) noted that the corporate
governance in an organization has an effect on the formation of audit and remuneration
committees’, which in turn affect a business’ audit risk. According to Yatim et al. (2006),
companies that have high levels of corporate governance have little inherent and control risks.
Emphasizing on the research by Yatim et al (2006), not that businesses that have independent
boards are more effective in monitoring and controlling the firm’s activities. Through this means,
they are able to stop opportunistic managerial exploitation of firm’s resources.
Guest (2009), notes that the board of directors plays an important role in in advising and
monitoring the CEO. Fama and Jensen (1983) note that large board sizes have the advantage of
having a collective source of information, which leads to higher performance. In addition, Guest
(2009) notes that and independent board has the ability of removing and disciplining ineffective
management teams, which ensures that the managers pursue the interest of shareholders.
Data
The sample consists of 30 UK firms incorporated in the FTSE Share Index Companies. A
panel data set will be covering 2005-2016. The minimal number of years that the companies will
have adopted the Combined Codes will be two years. The unbalanced panel data will be for ten
years. This data will be accessed from the companies’ annual reports. Generally, the annual

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The Effects of CG and Firms Performance on Audit Risks Methodology Data, Empirical Design, and Variable Measurement Our model is an adaptation of McKnight and Weir (2008) on the agency cost, corporate governance mechanism and ownership structures. In particular, corporate governance is designed to fit into the unique nature of the business, which is normally established at the value maximizing point (Mc Connell, 2002). Weir and Laing (2000) noted that the corporate governance in an organization has an effect on the formation of audit and remuneration committees’, which in turn affect a busin ...
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