The Moderating Effect of an Audit Committee on the Relationship between Non-Audit Services and Corporate Performance

Abstract

The corporate performance is very important issue in developing countries like Jordan. However, there is a lack of studies that investigated this issue in developing countries, particularly in Jordan. This paper investigated the effect of board diversity and non-audit services (NAS) on the corporate performance of Jordanian industrial firms listed on the Amman stock exchange. It also explored the moderating effect of the audit committee on the association between NAS and the performance of firm, which has not been fully investigated so far by other studies on Jordanian firms. In this study, performance was measured using (ROA) return on assets and (ROE) return on equity. This study covered 58 industry firms listed on the Amman Stock Exchange in 2011. The findings showed that NAS and board diversity were significantly related to corporate performance. The results also showed that an audit committee moderates the relationship between NAS and corporate performance for the two models (ROE and ROA). The findings of this study indicated that NAS negatively affected firm performance by confining the functions of an independence auditor, a situation that would lead ultimately to lower financial performance of firms. This study concludes that the existence of an audit committee in the firms contribute positively to improving their performance.

Keywords: corporate performance, non-audit services, audit committee, Jordan, industrial firms