Title: Financial reporting quality, audit quality and idiosyncratic volatility: moderating role of family ownership concentration

Authors: Afkar Majeed; Rohaida Basiruddin; Salman Khalid

Addresses: Azman Hashim International Business School, Level 10 Menara Razak, Universiti Teknologi Malaysia, Jln Sultan Yahya Petra, 54100 Kuala Lumpur, Malaysia ' Azman Hashim International Business School, Level 10 Menara Razak, Universiti Teknologi Malaysia, Jln Sultan Yahya Petra, 54100 Kuala Lumpur, Malaysia ' Azman Hashim International Business School, Level 10 Menara Razak, Universiti Teknologi Malaysia, Jln Sultan Yahya Petra, 54100 Kuala Lumpur, Malaysia

Abstract: This study explores the relationship between financial reporting quality and audit quality on idiosyncratic volatility. The study also analyses the moderating role of family ownership concentration (FOC) on financial reporting quality and idiosyncratic volatility. This study uses a sample of 726 firm-year observations of non-financial firms listed in the PSX 100 index of Pakistan's stock market from 2009 to 2019. The study uses the system-generalised method of moment analysis method. The main findings indicate that low financial reporting quality negatively and significantly affects idiosyncratic volatility. In contrast, audit quality positively and substantially impacts idiosyncratic volatility. Additionally, FOC moderates the relationship between financial reporting and idiosyncratic volatility. These findings will help regulators advance policies that can improve the informativeness of stock prices. Focusing on Pakistan, a developing market, this study adds value to the existing literature, as most previous evidence was derived from the developed markets. Moreover, the moderating role of FOC is not frequently investigated.

Keywords: idiosyncratic volatility; financial reporting quality; audit quality; family ownership concentration; FOC; system generalised method of moment; Pakistan stock market.

DOI: 10.1504/GBER.2023.134359

Global Business and Economics Review, 2023 Vol.29 No.4, pp.492 - 508

Received: 09 Dec 2021
Accepted: 21 May 2022
Published online: 19 Oct 2023 *

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