The moderating effect of internal audit on the relationship between corporate governance mechanisms and corporate performance among Saudi Arabia listed companies

This study primarily aimed to assess the internal audit function’s ability to detect and self-report fraud. The paper investigated the moderating role of internal audit on the relationship between corporate governance mechanisms and corporate performance (ROA) and the direct effect of corporate governance characteristics and internal audit characteristics on corporate governance of firms listed in the stock market of Saudi Arabia. one hundred and eighty-eight observations obtained from forty-seven Saudi financial firms were used in this study for the years 2014-2017. The study used the FGLS regression to test the variables relationships and to test the moderating effects of internal auditor on the corporate governance characteristics and corporate performance. The obtained empirical results supported a significant positive relationship between non-executive board, audit committee size, audit committee independence and internal audit profession, and corporate performance. Negative significant findings were also observed between the board size, internal audit size and internal audit education, and corporate performance. As for the moderating effects, the results supported a significant moderating role of internal audit size on the size of the board and its relationship with corporate performance. This study extends past studies dedicated to testing the agency theory and resource dependence theory as underpinning theories in examining the relationship between corporate governance and corporate performance. The study is expected to contribute to conceptual and theoretical studies by highlighting issues concerning corporate governance practice in Saudi listed firms. The study focused on the internal audit committee characteristics, corporate governance characteristics and the corporate governance best practices that practitioners can utilized when it comes to the role of internal audit committee.