CORPORATE GOVERNANCE MECHANISMS AND PRODUCT DIVERSIFICATION: THE INFLUENCE OF AUDIT COMMITTEE CHARACTERISTICS AND INTERNAL AUDIT QUALITY

Abstract

This study aims to investigate the effect of audit committee characteristics
and the company's internal control system on product diversification in
companies listed on the Tehran Stock Exchange. For this purpose, five
hypotheses were formulated to investigate the issue, and data from 130
member companies of the Stock Exchange were analyzed for the period
between 2012 and 2018. The research regression model was examined and
tested using panel data with a fixed-effects approach. The results showed
that among the audit committee characteristics, audit committee financial
expertise and audit committee independence have a significant positive
effect on product diversification, due to increased monitoring,
transparency, and appropriate disclosure. However, audit committee size
does not have a significant effect on product diversification. Also, the
results confirm that among the characteristics of the company's internal
control system, the presence of weaknesses mentioned in the audit report
has a significant negative effect on product diversification. On the other
hand, regarding the ratio of internal audit department employees to the
total number of employees in the business unit, the results indicate that it
has no significant effect on product diversification.