Litigation Risk- Delving Into Audit Quality, Internal Audit Structure, Political Connections, And Company Size

Document Type : Research Paper

Authors

Universitas Sultan Ageng Tirtayasa

10.22059/ijms.2024.367759.676318

Abstract

This study investigates the impact of audit quality, internal audit organizational structure, political connections, and company size on litigation risk in the consumer goods industry sector listed on the Indonesia Stock Exchange during the period 2017-2022. A quantitative approach was used by applying Fixed Effects, Ordinary Least Square, Random Effects, and Robust Regression analysis simultaneously to analyze panel data. The results showed that high audit quality serves as a significant positive signal in reducing the risk of lower litigation, providing confidence to stakeholders that financial statements can be more reliable and free from material misstatement. Meanwhile, a better internal audit organizational structure introduces complexity in the management of litigation risk as the organization grows, highlighting the possibility of more complicated implications in the context of signals when internal audit placement does not fit the needs of the organization. Political connections and company size give positive signals regarding litigation risk, albeit with different levels of significance, indicating complexity in the dynamics of political signals and company size. The findings of this study can provide guidance for stakeholders in the appointment of agents to manage the company.

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Interdisciplinary Journal of Management Studies (Formerly known as Iranian Journal of Management Studies)

Articles in Press, Accepted Manuscript
Available Online from 28 February 2024

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