The Mediating Effects of Audit Quality on the Relationship between Corporate Governance and Cash Dividends

Abstract

This study expands prior studies of the informative value of corporate governance on firm performance by adding audit quality as a mediating variable into analysis.  This study measures firm performance using cash dividends as the dependent variable, while the independent variables are corporate governance mechanisms.  Furthermore, the study introduces the mediating variable using audit quality to observe the accelerating power of auditors in supporting corporate governance that finally affects firm performance.  The data set includes the top 100 listed companies (SET 100) which can be considered as the highest corporate governance level for the Stock Exchange of Thailand (SET) from 2013 – 2016. Both descriptive statistics and multiple regression models are performed.

The results confirm those of previous studies showing that corporate governance mechanisms including the notification of general shareholder meetings in advance and director remunerations are likely to increase cash dividends. When entering audit quality as a mediating variable into the analysis, it is found that not only corporate governance mechanisms but also audit quality significantly influence cash dividends. Also, control variables including firm size, leverage ratios and net profit margin tend to increase cash dividends.  Overall, the result of this study indicates that corporate governance mechanisms promote firm performance.  In addition, auditors also have accelerating power to firm performance.