Shariah Compliance as a Governance Signal: Evidence From Auditor Choice, Audit Fees, and Financial Reporting Quality
Year: 2026
Type: article
Abstract: This study examines whether Shariah compliance status is associated with auditor choice, audit pricing, and financial reporting quality among non-financial companies listed on Bursa Malaysia. Drawing on agency theory, signalling theory, and Islamic accountability theory, the study conceptualises Shariah compliance as a governance-related signal that may influence external monitoring and financial reporting practices. The analysis covers 450 companies listed on the Main and ACE Markets over the 2022–2025 period, yielding 1,800 firm-year observations. Shariah compliance status is measured using the Shariah-compliant securities classifications issued by the Securities Commission Malaysia. Auditor choice is measured by Big Four auditor engagement, audit pricing by the natural logarithm of audit fees, and financial reporting quality by the absolute value of discretionary accruals estimated using the Modified Jones Model. The empirical analysis employs regression models appropriate to the respective dependent variables, with control variables and year and industry effects as specified in the research design. The reported findings indicate that Shariah compliance status is positively associated with Big Four auditor engagement and audit fees, while it is negatively associated with absolute discretionary accruals. These results suggest that Shariah compliance status may be associated with stronger external monitoring, higher audit pricing, and lower accrual-based earnings management. The study contributes to the literature by examining these three outcomes within a unified framework in the Malaysian capital market. The findings offer potential implications for investors, auditors, regulators, and corporate reporting stakeholders seeking to understand the governance significance of Shariah compliance. The results should be interpreted as associations rather than causal effects.
Source: Acta Innovations
Language: English
Subfield: Accounting
Domain: Social Sciences
Open Access status: diamond
OpenAlex ID: W7225835511
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