Bigger, Stronger, Fairer? Exploring How Company Size and Capital Shape Audit Quality through Ownership Structure

Abstract

This study investigates how firm size, ownership structure, and capital structure influence audit quality among manufacturing companies listed on the Indonesia Stock Exchange (IDX) during the period 2021–2024. The research is motivated by the persistent variation in audit quality across firms in emerging markets, despite standardized regulatory frameworks. Using a quantitative approach, this study analyzes a balanced panel dataset of 224 firm-year observations drawn from annual financial statements and audit disclosures. Audit quality is measured using a binary variable indicating whether a company employs a Big 4 auditor. The empirical findings reveal that firm size and ownership structure have positive and significant effects on audit quality, indicating that larger firms and those with concentrated ownership are more likely to engage reputable auditors. In contrast, capital structure shows a positive but statistically insignificant relationship, suggesting that leverage alone does not necessarily enhance the demand for higher audit assurance. The results reinforce the importance of firm characteristics and ownership control in shaping audit quality decisions in the Indonesian context. This study contributes to the literature by integrating firm size, ownership, and capital factors within a unified analytical framework, providing insights into how governance mechanisms operate in emerging markets to influence external assurance practices.