A Theoretical Framework on the Relationship between Network Governance and Audit Pricing in Malaysia
Keywords:
Civil officials, audit committee, audit pricing, network governance, social network theory, Malaysia
Abstract
The appointment of senior civil officials (SCO) to boards of directors of publicly traded firms, which distinguishes Malaysia from other countries, has prompted questions regarding SCO's credibility as the board of directors. The study's goal is to investigate the impact of network governance as depicted by senior civil officials from the audit committee (SCOAC) on audit prices. The theoretical foundation is based on social network theory and network governance. Quantitative methods will be used with data from publicly traded companies' annual reports in Bursa Malaysia. The study's findings are likely to add to the existing literature on network governance, SCOAC, and audit pricing. Furthermore, the study's findings are expected to serve as a useful reference for regulatory authorities as they draft and evaluate related policies. This will be the first study to present empirical evidence on the relationship between SCOAC and audit pricing in Malaysian public listed companies.
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References
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Alvarez, G., Pilbeam, C., & Wilding, R. (2010). Nestlé Nespresso AAA sustainable quality program: an investigation into the governance dynamics in a multi?stakeholder supply chain network. Supply Chain Management: An International Journal, 15(2), 165-182. https://doi.org/10.1108/135985410110
28769
Ang, J. S., Ding, D. K., & Thong, T. Y. (2013). Political connection and firm value. Asian Development Review, 30(2), 131-166. https://doi.org/10.1162/ADEV_a_00018
Bjørnåli, E. S., & Gulbrandsen, M. (2010). Exploring board formation and evolution of board composition in academic spin-offs. The Journal of Technology Transfer, 35(1), 92-112.
Che-Ahmad, A., Shafie, R., & Mohamad-Yusof, N. Z. (2006). The provision of non-audit services, audit fees and auditor independence. Asian Academy of Management Journal of Accounting and Finance, 2(1), 21-40.
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Dellaportas, S., Leung, P., & Cooper, B. J. (2012). Observations on audit committee characteristics. Managerial Auditing Journal, 27(4), 1-4.
Dubini, P., & Aldrich, H. (1991). Personal and extended networks are central to the entrepreneurial process. Journal of Business Venturing, 6(5), 305-313.
Evana, E., Farichah, F., Mirfazli, E., Idris, A. Z., & Tudor, A. T. (2019). An analysis of the effect of corporate characteristics and auditor characteristics on audit fee. International Journal of Economics, Business and Entrepreneurship, 2(1), 13-26.
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Harymawan, I., Putra, F. K. G., Ekasari, W. F., & Sucahyati, D. (2020). Are independent commissioners able to mitigate higher audit fees in politically connected firms? Evidence from Indonesia. International Journal of Innovation, Creativity and Change, 8(11), 24-43.
Jamaludin, N. D., Sanusi, Z. M., & Kamaluddin, A. (2015). Board structure and earnings management in Malaysian government-linked companies. Procedia Economics and Finance, 28, 235-242. https://
doi.org/10.1016/S2212-5671(15)01105-3
Johl, S., Subramaniam, N., & Zain, M. M. (2012). Audit committee and CEO ethnicity and audit fees: some Malaysian evidence. The International Journal of Accounting, 47(3), 302-332. https://doi.org/10.1016/j.intacc.2012.07.002
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Kikhia, H. Y. (2015). Determinants of audit fees: Evidence from Jordan. Accounting and Finance Research, 4(1), 42-53. http://dx.doi.org/10.5430/afr.v4n1p42
Killing, J. P. (1988). Understanding alliances: The role of task and organizational complexity. In F. Contractor & P. Lorange (Eds.), Cooperative strategies in international business (pp. 55-68). Lexington, MA: Lexington Books.
Klijn, E. H., & Koppenjan, J. (2016). The shift toward network governance: Drivers, characteristics and manifestations. In Theory and practice of public sector reform (pp. 158-177). Routledge.
Larson, A. (1992). Network dyads in entrepreneurial settings: A study of the governance of exchange relationships. Administrative Science Quarterly, 76-104. https://doi.org/10.2307/2393534
Liebeskind, J. P., Oliver, A. L., Zucker, L., & Brewer, M. (1996). Social networks, learning, and flexibility: Sourcing scientific knowledge in new biotechnology companies. Organization Science, 7(4), 428-443. https://doi.org/10.1287/orsc.7.4.428
Manit, J. M., Kolpakov, A., & Eubank, W. (2019). Analyzing Social Policy from a Network Perspective. Advances in Social Work, 19(1), 22-38. https://doi.org/10.18060/22631
Miles, R. E., Snow, C. C., Meyer, A. D., & Coleman Jr, H. J. (1978). Organizational strategy, structure, and process. Academy of Management Review, 3(3), 546-562. https://doi.org/10.5465/amr.1978
.4305755
Park, M., Kim, M., & Ryu, S. (2020). The relationship between network governance and unilateral governance in dynamic consumer demand. Industrial Marketing Management, 84, 194-201. https://doi.org/10.1016/j.indmarman.2019.05.008
Powell, W. (1990). Neither Market Nor Hierarchy: Network Forms of Organization. Research in Organizational Behaviour, núm. 12. Remmele, B.(2004). The Moral Framework of Cyberspace. Journal of Information, Communication & Ethics in Society, (2), 125-131.
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pp031985.pdf
Saputra, I. G., & Yusuf, A. (2019). The role of internal audit in corporate governance and contribution to determine audit fees for external audits. Journal of Finance and Accounting, 7(1), 1-5.
Scarlett, L., & McKinney, M. (2016). Connecting people and places: the emerging role of network governance in large landscape conservation. Frontiers in Ecology and the Environment, 14(3), 116-125. https://doi.org/10.1002/fee.1247
Securities Commission Malaysia (2021, April). Malaysian Code on Corporate https://www.sc.com.my/api/documentms/download.ashx?id=239e5ea1-a258-4db8-a9e2-41c215b
db776
Simunic, D. A. (1980). The pricing of audit services: Theory and evidence. Journal of Accounting Research, 18(1), 161-190. https://doi.org/10.2307/2490397
Simunic, D. A. (1984). Auditing, consulting, and auditor independence. Journal of Accounting Research, 22(2),679-702. https://doi.org/10.2307/2490671
Sørensen, E., & Torfing, J. (2018). The democratizing impact of governance networks: From pluralization, via democratic anchorage, to interactive political leadership. Public Administration, 96(2), 302-317.
Sultana, N., Singh, H., & Van der Zahn, J. L. M. (2015). Audit committee characteristics and audit report lag. International Journal of Auditing, 19(2), 72-87. https://doi.org/10.1111/ijau.12033
Tee, C. M., Gul, F. A., Foo, Y. B., & Teh, C. G. (2017). Institutional monitoring, political connections and audit fees: Evidence from Malaysian firms. International Journal of Auditing, 21(2), 164-176.
Tee, C. M. (2019). CEO power and audit fees: Evidence from Malaysia. International Journal of Auditing, 23(3), 365-386. https://doi.org/10.1111/ijau.12166
Truong, C., Garg, M., Adrian, C., Pham, A. V., & Shane, P. (2020). Political alignment and audit pricing. International Journal of Auditing, 24(2), 205-231. https://doi.org/10.1111/ijau.12189
Turyahikayo, W., Matsiko, F. B., Okiror, J. J., & Buregyeya, M. (2017). Understanding actor innovation behavior: The application of network governance theory in agricultural innovation platforms. Journal of Agricultural Extension and Rural Development, 9(11), 247-254.
Urhoghide, R. O., & Emeni, F. K. (2014). Corporate governance and audit fee determination in Nigeria. ESUT Journal of Accountancy, 5(2), 101-108.
Wang, H., & Ran, B. (2023). Network governance and collaborative governance: A thematic analysis on their similarities, differences, and entanglements. Public Management Review, 25(6), 1187-1211.
Williamson, O. E. (1991). Oliver E. Williamson. Administrative Science Quarterly, 36(2), 269-296.
Williamson, O. E. (1985). The economic institutions of capitalism: Companies, markets, relational contracting (Vol. 866). New York: Free Press.
Wong, W. Y., & Hooy, C. W. (2018). Do types of political connections affect firm performance differently? Pacific-Basin Finance Journal, 51, 297-317. https://doi.org/10.1016/j.pacfin.2018.08.009
Wong, W. Y., & Hooy, C. W. (2021). Market response towards different types of politically connected firms during political events: evidence from Malaysia. International Journal of Managerial Finance, 17(1), 49-71. https://doi.org/10.1108/IJMF-09-2019-0331
Wu, J., & Chen, X. (2012). Leaders’ social ties, knowledge acquisition capability and firm competitive advantage. Asia Pacific Journal of Management, 29, 331-350.
Wu, Y., & Dong, B. (2021). The value of independent directors: Evidence from China. Emerging Markets Review, 49, 100763.https://doi.org/10.1016/j.ememar.2020.100763
Yatim, P., Kent, P., & Clarkson, P. (2006). Governance structures, ethnicity, and audit fees of Malaysian listed firms. Managerial Auditing Journal, 21(7), 757-782. https://doi.org/10.1108/02686900610680530
Yatim, N. (2021, September 6). Mohd Zaki was appointed Executive Director of Golden Pharos. Sinar Harian. https://www.sinarharian.com.my/article/159896/BISNES/Mohd-Zaki-dilantik-Pengarah-Eksekutif-Golden-Pharos
Ziggers, G. W., Gagalyuk, T., & Hanf, J. (2010). Network governance at the firm and network level: Goals, routines, and social mechanisms. International Journal on Food System Dynamics, 1(4), 342-351.
IJAAPE.2013.054331
Abdul-Wahab, E. A., Mat-Zain, & Abdul Rahman, R. (2015). Political connections: a threat to auditor independence? Journal of Accounting in Emerging Economies, 5(2), 222-246. https://doi.org/10.1108/
JAEE-03-2012-0013
Alvarez, G., Pilbeam, C., & Wilding, R. (2010). Nestlé Nespresso AAA sustainable quality program: an investigation into the governance dynamics in a multi?stakeholder supply chain network. Supply Chain Management: An International Journal, 15(2), 165-182. https://doi.org/10.1108/135985410110
28769
Ang, J. S., Ding, D. K., & Thong, T. Y. (2013). Political connection and firm value. Asian Development Review, 30(2), 131-166. https://doi.org/10.1162/ADEV_a_00018
Bjørnåli, E. S., & Gulbrandsen, M. (2010). Exploring board formation and evolution of board composition in academic spin-offs. The Journal of Technology Transfer, 35(1), 92-112.
Che-Ahmad, A., Shafie, R., & Mohamad-Yusof, N. Z. (2006). The provision of non-audit services, audit fees and auditor independence. Asian Academy of Management Journal of Accounting and Finance, 2(1), 21-40.
Den Ouden, T. (2015). A contribution to the understanding and strengthening of network governance [Unpublished doctoral dissertation]. Wageningen University and Research Centre, The Netherlands).
Dellaportas, S., Leung, P., & Cooper, B. J. (2012). Observations on audit committee characteristics. Managerial Auditing Journal, 27(4), 1-4.
Dubini, P., & Aldrich, H. (1991). Personal and extended networks are central to the entrepreneurial process. Journal of Business Venturing, 6(5), 305-313.
Evana, E., Farichah, F., Mirfazli, E., Idris, A. Z., & Tudor, A. T. (2019). An analysis of the effect of corporate characteristics and auditor characteristics on audit fee. International Journal of Economics, Business and Entrepreneurship, 2(1), 13-26.
Federal Constitution of Malaysia. (September, 1963). Contains the latest amendments - Act 1260/2006. Law of Malaysia. https://www.sprm.gov.my/admin/files/sprm/assets/pdf/penguatkuasaan/perlembaga
an-persekutuan-bm.pdf
Hamid, A. A. (2011). Network governance in government?linked companies (GLCs) and non?government?linked companies (NGLCs) in Malaysia. Journal of Financial Reporting and Accounting, 9(1), 54-73. https://doi.org/10.1108/19852511111139804
Harymawan, I., Putra, F. K. G., Ekasari, W. F., & Sucahyati, D. (2020). Are independent commissioners able to mitigate higher audit fees in politically connected firms? Evidence from Indonesia. International Journal of Innovation, Creativity and Change, 8(11), 24-43.
Jamaludin, N. D., Sanusi, Z. M., & Kamaluddin, A. (2015). Board structure and earnings management in Malaysian government-linked companies. Procedia Economics and Finance, 28, 235-242. https://
doi.org/10.1016/S2212-5671(15)01105-3
Johl, S., Subramaniam, N., & Zain, M. M. (2012). Audit committee and CEO ethnicity and audit fees: some Malaysian evidence. The International Journal of Accounting, 47(3), 302-332. https://doi.org/10.1016/j.intacc.2012.07.002
Jones, C., Hesterly, W. S., & Borgatti, S. P. (1997). A general theory of network governance: Exchange conditions and social mechanisms. Academy of Management Review, 22(4), 911-945. https://doi.org/10.5465/amr.1997.9711022109
Kapucu, N., & Hu, Q. (2020). Network governance: Concepts, theories, and applications. Routledge.
Kettunen, O. (2013, May 3-6). A network-wide transaction cost theory approach in subcontracting industry: An agenda for empirical research [Conference presentation]. POMS 2013 Conference, University of South Carolina, Denver, Colorado, United States.
Kikhia, H. Y. (2015). Determinants of audit fees: Evidence from Jordan. Accounting and Finance Research, 4(1), 42-53. http://dx.doi.org/10.5430/afr.v4n1p42
Killing, J. P. (1988). Understanding alliances: The role of task and organizational complexity. In F. Contractor & P. Lorange (Eds.), Cooperative strategies in international business (pp. 55-68). Lexington, MA: Lexington Books.
Klijn, E. H., & Koppenjan, J. (2016). The shift toward network governance: Drivers, characteristics and manifestations. In Theory and practice of public sector reform (pp. 158-177). Routledge.
Larson, A. (1992). Network dyads in entrepreneurial settings: A study of the governance of exchange relationships. Administrative Science Quarterly, 76-104. https://doi.org/10.2307/2393534
Liebeskind, J. P., Oliver, A. L., Zucker, L., & Brewer, M. (1996). Social networks, learning, and flexibility: Sourcing scientific knowledge in new biotechnology companies. Organization Science, 7(4), 428-443. https://doi.org/10.1287/orsc.7.4.428
Manit, J. M., Kolpakov, A., & Eubank, W. (2019). Analyzing Social Policy from a Network Perspective. Advances in Social Work, 19(1), 22-38. https://doi.org/10.18060/22631
Miles, R. E., Snow, C. C., Meyer, A. D., & Coleman Jr, H. J. (1978). Organizational strategy, structure, and process. Academy of Management Review, 3(3), 546-562. https://doi.org/10.5465/amr.1978
.4305755
Park, M., Kim, M., & Ryu, S. (2020). The relationship between network governance and unilateral governance in dynamic consumer demand. Industrial Marketing Management, 84, 194-201. https://doi.org/10.1016/j.indmarman.2019.05.008
Powell, W. (1990). Neither Market Nor Hierarchy: Network Forms of Organization. Research in Organizational Behaviour, núm. 12. Remmele, B.(2004). The Moral Framework of Cyberspace. Journal of Information, Communication & Ethics in Society, (2), 125-131.
Public Service Department (1985, March). Treasury Circular No. 3, Guidelines on Appointment and Roles of Government Officer as Chairman, Chief Executives and Board of Directors of Public Corporations, Government Companies and Government-Owned Companies. https://docs.jpa.gov.my/docs/pp/1985/
pp031985.pdf
Saputra, I. G., & Yusuf, A. (2019). The role of internal audit in corporate governance and contribution to determine audit fees for external audits. Journal of Finance and Accounting, 7(1), 1-5.
Scarlett, L., & McKinney, M. (2016). Connecting people and places: the emerging role of network governance in large landscape conservation. Frontiers in Ecology and the Environment, 14(3), 116-125. https://doi.org/10.1002/fee.1247
Securities Commission Malaysia (2021, April). Malaysian Code on Corporate https://www.sc.com.my/api/documentms/download.ashx?id=239e5ea1-a258-4db8-a9e2-41c215b
db776
Simunic, D. A. (1980). The pricing of audit services: Theory and evidence. Journal of Accounting Research, 18(1), 161-190. https://doi.org/10.2307/2490397
Simunic, D. A. (1984). Auditing, consulting, and auditor independence. Journal of Accounting Research, 22(2),679-702. https://doi.org/10.2307/2490671
Sørensen, E., & Torfing, J. (2018). The democratizing impact of governance networks: From pluralization, via democratic anchorage, to interactive political leadership. Public Administration, 96(2), 302-317.
Sultana, N., Singh, H., & Van der Zahn, J. L. M. (2015). Audit committee characteristics and audit report lag. International Journal of Auditing, 19(2), 72-87. https://doi.org/10.1111/ijau.12033
Tee, C. M., Gul, F. A., Foo, Y. B., & Teh, C. G. (2017). Institutional monitoring, political connections and audit fees: Evidence from Malaysian firms. International Journal of Auditing, 21(2), 164-176.
Tee, C. M. (2019). CEO power and audit fees: Evidence from Malaysia. International Journal of Auditing, 23(3), 365-386. https://doi.org/10.1111/ijau.12166
Truong, C., Garg, M., Adrian, C., Pham, A. V., & Shane, P. (2020). Political alignment and audit pricing. International Journal of Auditing, 24(2), 205-231. https://doi.org/10.1111/ijau.12189
Turyahikayo, W., Matsiko, F. B., Okiror, J. J., & Buregyeya, M. (2017). Understanding actor innovation behavior: The application of network governance theory in agricultural innovation platforms. Journal of Agricultural Extension and Rural Development, 9(11), 247-254.
Urhoghide, R. O., & Emeni, F. K. (2014). Corporate governance and audit fee determination in Nigeria. ESUT Journal of Accountancy, 5(2), 101-108.
Wang, H., & Ran, B. (2023). Network governance and collaborative governance: A thematic analysis on their similarities, differences, and entanglements. Public Management Review, 25(6), 1187-1211.
Williamson, O. E. (1991). Oliver E. Williamson. Administrative Science Quarterly, 36(2), 269-296.
Williamson, O. E. (1985). The economic institutions of capitalism: Companies, markets, relational contracting (Vol. 866). New York: Free Press.
Wong, W. Y., & Hooy, C. W. (2018). Do types of political connections affect firm performance differently? Pacific-Basin Finance Journal, 51, 297-317. https://doi.org/10.1016/j.pacfin.2018.08.009
Wong, W. Y., & Hooy, C. W. (2021). Market response towards different types of politically connected firms during political events: evidence from Malaysia. International Journal of Managerial Finance, 17(1), 49-71. https://doi.org/10.1108/IJMF-09-2019-0331
Wu, J., & Chen, X. (2012). Leaders’ social ties, knowledge acquisition capability and firm competitive advantage. Asia Pacific Journal of Management, 29, 331-350.
Wu, Y., & Dong, B. (2021). The value of independent directors: Evidence from China. Emerging Markets Review, 49, 100763.https://doi.org/10.1016/j.ememar.2020.100763
Yatim, P., Kent, P., & Clarkson, P. (2006). Governance structures, ethnicity, and audit fees of Malaysian listed firms. Managerial Auditing Journal, 21(7), 757-782. https://doi.org/10.1108/02686900610680530
Yatim, N. (2021, September 6). Mohd Zaki was appointed Executive Director of Golden Pharos. Sinar Harian. https://www.sinarharian.com.my/article/159896/BISNES/Mohd-Zaki-dilantik-Pengarah-Eksekutif-Golden-Pharos
Ziggers, G. W., Gagalyuk, T., & Hanf, J. (2010). Network governance at the firm and network level: Goals, routines, and social mechanisms. International Journal on Food System Dynamics, 1(4), 342-351.
Published
2025-02-18
How to Cite
Rusli, A. R. Z., Yaacob, N. M., & Abdullah, M. A. (2025). A Theoretical Framework on the Relationship between Network Governance and Audit Pricing in Malaysia. Information Management and Business Review, 17(1(I), 184-194. https://doi.org/10.22610/imbr.v17i1(I).4386
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Copyright (c) 2025 Arina Rus Zahira Rusli, Najihah Marha Yaacob, Mazliza Azuana Abdullah
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