AUDIT QUALITY AND FINANCIAL HEALTH: A STUDY OF LEADING INDIAN BANKS
DOI:
https://doi.org/10.61990/ijamesc.v3i5.601Keywords:
Audit Quality, Financial Health, Corporate Governance, Indian Commercial Banks, Nifty BankAbstract
This study investigates the relationship between audit quality and financial performance among leading Indian commercial banks from 2015 to 2024. Audit quality is assessed using a composite Audit Committee Score (ACS), developed through a binary scoring method based on 14 parameters that consider regulatory compliance and governance best practices. The research utilizes a panel of nine Nifty Bank Index banks, selected based on consistent data availability throughout the study period. The study is structured around two primary objectives. Firstly, to evaluate the effectiveness of audit committees, mean ACS values were calculated and used to rank the banks. The findings reveal that private sector banks, particularly Kotak Mahindra Bank and Federal Bank, consistently demonstrated higher audit effectiveness compared to their public sector counterparts. Secondly, the research examines the impact of audit quality on financial performance, with Return on Assets (ROA), Return on Equity (ROE), and Net Interest Margin (NIM) as dependent variables. Panel regression analysis, supported by relevant diagnostic tests and model selection criteria, indicates a statistically significant positive effect of ACS on ROA and ROE, while the effect on NIM was positive but not significant. The research underscores the crucial role of efficient audit committees in enhancing profitability and financial control in banks. The study recommends regulatory and institutional measures to further strengthen the structures of audit committees, particularly in public sector banks, in alignment with best governance practices and financial stability.
Downloads
References
Ahmed, M. M. A., Hassan, D. K. A. E. S. A., & Magar, N. H. A. (2024). The moderating role of board gender diversity on the relationship between audit committee characteristics and financial performance: evidence from Egypt. Journal of Financial Reporting and Accounting. https://doi.org/10.1108/JFRA-12-2023-0746
Al-Homaidi, E. A., Tabash, M. I., & Ahmad, A. (2020). The profitability of islamic banks and voluntary disclosure: empirical insights from Yemen. Cogent Economics & Finance, 8(1), 1778406. https://doi.org/10.1080/23322039.2020.1778406
Bahari, S. (2024). The Impact of Board Size and Audit Committee Characteristics on Financial Performance in Foreign Exchange Banks: Evidence from Indonesia. Jurnal Penelitian IPTEKS, 9(1), 85–101. https://doi.org/10.32528/penelitianipteks.v9i1.1474
Bhagat, S., & Bolton, B. (2008). Corporate governance and firm performance. Journal of Corporate Finance, 14(3), 257–273. https://doi.org/10.1016/j.jcorpfin.2008.03.006
Chronopoulos, D. K., Rempoutsika, L. M., & Wilson, J. O. S. (2024a). Audit committee oversight and bank financial reporting quality. Journal of Business Finance & Accounting, 51(1–2), 657–687. https://doi.org/10.1111/jbfa.12738
Chronopoulos, D. K., Rempoutsika, L. M., & Wilson, J. O. S. (2024b). Audit committee oversight and bank financial reporting quality. Journal of Business Finance & Accounting, 51(1–2), 657–687. https://doi.org/10.1111/jbfa.12738
Dey, S. K., & Sharma, D. (2021). Nexus between corporate governance and financial performance: Corroboration from Indian Banks. Universal Journal of Accounting and Finance, 8(4), 140–147. https://doi.org/10.13189/UJAF.2020.080406
Dwekat, A., Taweel, A., & Salameh, A. (2025). Boardroom diversity and financial performance in Palestinian banks and insurers. Discover Sustainability, 6(1). https://doi.org/10.1007/s43621-025-00836-3
Green, C. P., & Homroy, S. (2018). Female directors, board committees and firm performance. European Economic Review, 102, 19–38. https://doi.org/10.1016/j.euroecorev.2017.12.003
Gulati, R., Kattumuri, R., & Kumar, S. (2020). A non-parametric index of corporate governance in the banking industry: An application to Indian data. Socio-Economic Planning Sciences, 70, 100702. https://doi.org/10.1016/j.seps.2019.03.008
Habtoor, O. (2022). The impact of audit committee characteristics on Saudi bank performance. International Journal of Research in Business and Social Science (2147- 4478), 11(6), 388–401. https://doi.org/10.20525/ijrbs.v11i6.1969
Haddad, A., El Ammari, A., & Bouri, A. (2021). Impact of Audit Committee Quality on the Financial Performance of Conventional and Islamic Banks. Journal of Risk and Financial Management, 14(4), 176. https://doi.org/10.3390/jrfm14040176
Jensen, M. C., & Meckling, W. H. (1976). Theory Of The Firm: Managerial Behavior, Agency Costs And Ownership Structure. In Journal of Financial Economics (Vol. 3). Q North-Holland Publishing Company.
Kumar, U. (2020). Corporate Governance Practices and Its Impact On Financial Performance Of Fmcg Sector In India: A Comparative Study Of Selected Units. Banaras Hindu University.
Letaifa, W. Ben, & Ali, R. Ben. (2024). Impact of Audit Committee Determinants on Financial Performance: Case of Tunisian Listed Banks. Journal of Ecohumanism, 3(4), 1520–1533. https://doi.org/10.62754/joe.v3i4.3679
Navillia, O. C., & Rahayu, R. A. (2024). The Effect of Independent Commissioners, Audit Committee, Internal Audit, Audit Quality, Company Size on Financial Performance in Banking Companies. Jurnal Riset Akuntansi Terpadu, 17(1), 90. https://doi.org/10.35448/jrat.v17i1.25387
Nouraldeen, R. M. (2024). The financial performance of Lebanese banks up to the financial crisis: do audit committee characteristics and ownership concentration matter? EuroMed Journal of Business. https://doi.org/10.1108/EMJB-07-2023-0199
Pandey, A. (2023). Effct Of Corporate Governance On Financial Performance Of Selected Banks- With Special Reference To SBI, PNB, HDFC & ICICI. Hemchand Yadav University.
Radhakrishna G.S. (2023). Impact of Financial Variables and Corporate Governance Variables on Loan Loss Provision in Indian Public & Private Sector Banks. Academy of Strategic Management Journal. https://www.abacademies.org/articles/impact-of-financial-variables-and-corporate-governance-variables-on-loan-loss-provision-in-indian-public-private-sector-banks-15662.html?utm_source=chatgpt.com
Salih Al-Husseini, A. S. (2024). Impact of Audit Committee Quality on the Financial Performance of the Iraqi Banking Sector. Journal of Economics, Finance And Management Studies, 07(06). https://doi.org/10.47191/jefms/v7-i6-70
Sami, H., Wang, J., & Zhou, H. (2011). Corporate governance and operating performance of Chinese listed firms. Journal of International Accounting, Auditing and Taxation, 20(2), 106–114. https://doi.org/10.1016/j.intaccaudtax.2011.06.005
Sandhya, S., & Parashar, N. (2019). A study on corporate governance practices of selected banks in India. Indian Journal of Finance, 13(2), 36–47. https://doi.org/10.17010/ijf/2019/v13i2/141686
Sarea, A. (2020). The Impact of Audit Committee Characteristics on the Performance: Evidence from Jordan. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.3648194
Singh, K., & Rastogi, S. (2023). Corporate governance and financial performance: evidence from listed SMEs in India. Benchmarking, 30(4), 1400–1423. https://doi.org/10.1108/BIJ-09-2021-0570
Srivastava, V., Das, N., & Pattanayak, J. K. (2018). Women on boards in India: a need or tokenism? Management Decision, 56(8), 1769–1786. https://doi.org/10.1108/MD-07-2017-0690
Downloads
Published
How to Cite
Issue
Section
License
Copyright (c) 2025 Vishal Patel, Kumar Aditya
This work is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.
