The Informative Value of CG Code Voluntary Disclosure on Firm

Performance When Moderated by External Auditors

WALAIPORN NUANSA-ARD1, SUPA TONGKONG1*, WACHIRA BOONYANET2

1Faculty of Business Administration,

Rajamangala University of Technology Thanyaburi,

Thanyaburi, Pathum Thani, 12110,

THAILAND

2Chulalongkorn Business School

Chulalongkorn University,

Pathumwan, Bangkok, 10330

THAILAND

*Corresponding Author

Abstract: - The study aims to empirically examine the voluntary disclosure of the corporate governance code

(CG Code) of Thai-listed companies. It also examines the effects of the information value of the CG Code on

firm performance and the moderating role of external audit quality in this effect. A disclosure specification

comprising 137 voluntary items recommended by the OECD is employed to judgmentally evaluate the CG

Code disclosed by the 95 fully implementing firms listed on the Stock Exchange of Thailand. The analysis is

performed using multivariate regression techniques along with Hayes’s regression-based analysis and shows

that CG Code and audit quality have a statistically significant positive effect on firm performance. In

addition, audit quality was found to moderate the positive effect of the CG Code on firm performance, such that

the effect of the CG Code on firm performance is strengthened as the quality of audits increases. Specifically,

the positive effect of CG Code on firm performance is stronger when the audit quality is at the average value

and above, whereas CG Code shows no statistically significant effect on firm performance when audit quality is

below average. The paper has contributed to the academic literature that managers should be motivated to

voluntarily disclose the CG Code and also engage with high-quality auditors in general and Thailand in

particular.

Key-Words: - Corporate Governance, SET, Tobin’s Q, Firm Performance, Audit Quality, Moderating Effect

Received: August 17, 2022. Revised: July 16, 2023. Accepted: August 18, 2023. Published: September 21, 2023.

1 Introduction

This study extends previous research on the

voluntary disclosure of corporate governance using

Thai-listed companies on the Stock Exchange of

Thailand (SET). In 2017, with the recommendation

of the OECD, the SET announced the Corporate

Governance Code (CG Code) which was developed

from the worldwide recognition of the Corporate

Governance Principle. This is because the board

responsibilities stated that the principles are too

general and also do not state board responsibility in

specific ways. Unlike ‘Comply or Explain’, the CG

Code introduces ‘Apply or Explain’ to encourage

Thai-listed companies to fully implement the Code

voluntarily, [1]. The studies on the CG Code

voluntary disclosure have not been carried out on a

wide-range basis, especially in emerging markets.

This opens research opportunities that once the

listed companies voluntarily comply with the CG

Code, how the implementation creates any benefit to

companies. Voluntary disclosure generally states the

information beyond the obligatory content in

publicly available information. Generally, voluntary

disclosure is to reveal more information as

management deems it appropriate, [2]. Previous

studies have carried on voluntary disclosure for

quite a while, [3], however, the voluntary disclosure

of the CG Code is rare. This study proudly

introduces the judgmental evaluation method of CG

Code disclosure 137 checklists. In addition, the

study extends previous studies by adding audit

quality as a moderating role between CG Code

voluntary disclosure and firm performance (Tobin’s

Q). In other words, companies are expected to

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voluntarily disclose information when management

perceives benefits over costs of doing so. Also, the

engagement of qualified auditors, as an outside

observer, should be considered as a monitoring

party. These two vehicles should finally increase

firm performance.

Consequently, the main objective of this study is

initially to investigate the informative value of the

new development of the CG Code voluntary

disclosure. Furthermore, the study intends to extend

the previous studies by introducing the moderating

effect of audit quality on the affiliation between the

CG Code and Tobin’s Q. Presumably, the influence

of the CG Code on firm performance will increase

when moderated by audit quality. The study is based

on 95 listed companies in SET. All of these

companies have fully adopted the CG Code

voluntarily in 2021. The voluntary disclosures of the

95 listed companies are critically reviewed. The

inferential statistics show that audit quality

moderates the impact of the CG Code on firm

performance; firms with higher audit quality are

more likely to have the impact of the CG Code

contribute to higher firm performance. This study is

the first to empirically examine the practice of

voluntary disclosure CG of Thai listed companies.

The study should reassure other listed companies in

emerging markets to increasingly adopt the CG

code.

2 Research Paradigms and

Theoretical Orientation

2.1 Information Asymmetry Theory

Information asymmetry is a fundamental concept in

security markets. It occurs when the management

team has information more than outside parties (i.e.

investors, creditors). Generally, information

asymmetry has been a concern for capital market

researchers because it indicates corporate integrity,

and reliable traits for corporate transparency, [4].

However, corporate transparency is unable to be

experiential directly, and with traditional measures,

therefore stakeholders mostly focus on information

disclosure and firm fundamentals, [5], [6].

Corporate disclosure is classified into voluntary and

mandatory disclosure. Mandatory disclosure

includes financial reporting, management meetings,

and regulatory filing which are significant

information that management shares information

about their firm performance and corporate

government with outsiders. On the other hand,

voluntary disclosure is no pattern. It depends on

what the management team expects and what should

be beneficial information disclosed to the public,

[2]. The studies, [7], [8], inserted that if companies

provide reliable disclosures about their value to the

public, the companies will totally disclose

information regarding how good or bad the

information is. Previous studies have theorized that

the purpose of voluntary disclosure is to control the

interest conflicts among stakeholders: investors,

creditors, and management, [9], [10]. The study,

[11], concluded that the aim of voluntary disclosure

is as follows: 1) to meet certain financial targets, 2)

to get favor in stock markets, 3) to reduce the cost of

litigation and 4) to show awareness of the economic

environment of firms and enable rapid changes.

2.2 Agency Theory

Corporate governance is created under the agency

theory stating that it is the method of designing

contracts that can stimulate rational agents

(management team) to operate on behalf of

principals (shareholders) when the agent's benefits

conflict with the principal's benefits. If both parties

have conflicting benefits, where the agent does not

operate according to the owner's benefits, this

conflict can be reduced by the agent's cost. This

means the total cost of control and supervision by

the owner through the board of directors,

institutional rights, and public rights in terms of

dividend payments and supervising stock prices for

organizational issues, [12], [13]. The notion of good

corporate governance is expected to be a tool for

building investor confidence that they will receive

returns on their investments. In, [14], the authors

state that good corporate governance involves the

method of controlling managers by investors to

provide benefits and act honestly in managing the

company's resources. In, [15], the authors revealed

that it is necessary to have a good corporate

governance system so that managers can supervise

and advise on investments and manage the resources

of the organization. Finally, in, [16], the authors

state that good corporate governance is important

for business continuity and sustainability. Corporate

governance provides transparency in responding to

different stakeholders, such as business partners,

customers, and creditors. The main objectives of

corporate governance are to promote responsibility,

transparency, fairness, and disclosure, which are

fundamental values for the success of every

business.

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2.3 Auditor-inspired Confidence Theory

Auditor-inspired confidence theory describes an

auditor as a confidential agent who expresses an

expert judgment and opinion based on the audit

work. This theory establishes a linkage between the

financial statement users for reliable financial

reports and the audit work's capability to meet those

needs. As a result, auditors must be aware that the

public expects audit failure rates to be low. As a

result, auditors must plan and carry out their audits

in such a way that the risk of unnoticed material

misstatements is kept to an acceptable level.

Therefore, auditors conduct their work in a way that

does not deceive their trust, [17]. The main

significance of this theory is that the auditor's duties

and responsibilities are derived from the public's

confidence and trust in the audit's success and the

auditor's assurance. In, [18], [19], the authors

concluded that society's trust in audited financial

reporting is misled when the audit reports do not

address misstatements and errors, resulting in a loss

of the audit's informative value.

3 Development of Corporate

Governance in Thailand

Since the 19977 economic crisis that occurred in

Thailand, which has continued to cause damage to

the capital market, it has seen an urgent need to

recover the Thai capital market; therefore, the

Master Plan for capital market development was

established. At the conference, representatives from

the private sector and government agencies provided

many useful ideas. One of the key measures that the

meeting paid special attention to was creating good

corporate governance in the capital market in listed

companies, intermediary institutions, as well as in

regulators. Later, the government officially

announced the year 2002 as the starting year of a

good corporate governance campaign. The

government has established the National CG

Committee. This committee has a policy for various

departments to promote good corporate governance

and organize corporate governance as a National

Agenda. Finally, at the beginning of 2004, Thailand

participated in the World Bank's Corporate

Governance Assessment Program. It is intended for

both domestic and international investors to be well

informed about the corporate governance

development regarding the supervision of the capital

market. The Thai Securities and Exchange

Commission acts as a liaison between

representatives of Thai banks and various agencies

involved in the capital market. The criteria used by

the World Bank in assessing Thailand are based on

the OECD Principles.

In 2006, the SET proposed corporate governance

principles for listed companies that are comparable

to the OECD's corporate governance principles.

Later in 2012, it was revised again to follow the

ASEAN Corporate Governance Scorecard, which is

classified into 5 sections: 1) Rights of shareholders,

2) equitable treatment of shareholders, 3) roles of

shareholders, 4) disclosure and transparency, and 5)

board responsibilities. The Thai capital market has

used good corporate governance principles set by

the SET as an important mechanism for enhancing

CG in listed companies from the beginning to the

present, which has achieved great success for some

time. However, many wrong-doing cases have

become more serious relating to corporate

governance scandals.

In 2017, SET adopted the concept of the

Corporate Governance Code (CG Code) based on

the OECD. SET stated that board responsibilities

should take more important roles in setting policies

and monitoring operations. Also, the 5 Principles

are too general and do not state specific board

responsibilities. Unlike 'Comply or Explain', the

Code introduces the 'Apply or Explain' measure to

the main concept of corporate governance under the

context and suitability for Thailand specifically for

the board of directors. The board can use its

discretion to consider and apply the principle

appropriately for the benefit of sustainable business

value creation, not just comply with the regulatory

requirements. The CG integrates social and

environmental issues into business processes, from

determining strategic directions, operational

processes, monitoring, and reporting, ensuring long-

term business performance, and creating reliability

for investors, stakeholders, and people around, for

the benefit of creating maintainable business values

as the expectations of businesses, investors, capital

market and society, [1]. In summary, the CG Code

is a practical standard for the board of directors by

aiming for the business to have good performance

about long-term continuity responsibility to

stakeholders as well as adaptability under various

changes. The CG Code consists of 8 principles

shown in Table 1.

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Table 1. Corporate Governance Code (CG Code)

category and its practical issues

Items

Practical

issues

Set objective

Principle 1: Establish clear

leadership roles and

responsibilities for the

board

Principle 2: Define

objectives that promote

sustainable value creation

Carry out the

specified

objectives

Principle 3 Strengthen

board effectiveness

Principle 4 Ensure

effective CEO and people

management

Principle 5 Nurture

innovation and responsible

business

Follow up,

evaluate

performance,

and disclose

information

Principle 6 Strengthen

effective risk management

and internal control

Principle 7 Ensure

disclosure and financial

integrity

Principle 8 Ensure

engagement

communication with

shareholders

Total

137

4 Literature Review

4.1 Affiliation between CG and Firm

Performance

Prior research has verified the affiliation between

corporate governance and firm performance for

many years. The latest studies still support the

information content of CG on firm performance. For

example, [20], found that obedience to corporate

governance principles improved to firm's financial

performance and added more intangible value to the

firm; thus, good corporate governance safeguards

the organization's board of directors to regularly

operate business, preserve control over the business,

and has transparency responsibilities. In addition, it

assures a strong risk management system. In, [21],

the authors pointed out that good corporate

governance not only helps promote the company’s

activities, increasing the ability to access external

financial resources but also encouraging the

company to create business value and control

systems in responding to risk events. In, [22], the

authors stated that corporate governance balances

interests between shareholders, management, and

other stakeholders. The approach was to reduce

conflicts of divisions and increase investor trust,

stable goodwill, shareholder wealth, and investment

opportunities. Finally, [23], found that corporate

governance and working capital had a positive

effect on firm performance and also increased

Tobin’s Q.

Previous studies of CG in Thailand have been

carried out for some time. In, [24], the authors

studied corporate governance in Asia. The study

showed that Tobin’s Q in all countries (except

Korea) has a median value equal to 1. In, [25], the

authors inspected the influence of voluntary

corporate governance initiatives on the value of the

company in the context of emerging markets of

Thailand, based on the "Comply or Explain"

corporate governance approach. The results showed

that a deviation depended on a firm size and also

increased firm value. The results indicated that

voluntary adoption in emerging markets had

typically no substantial effect on firm value. The

study, [26], examined whether or not companies

leverage the flexibility of an information disclosure

system based on the "Comply or Explain" approach

to properly apply governance practices for the

company’s value-creating requirement according to

the company's economic theory. The study found

that audit measures had a positive relationship with

the company's value and higher operational

efficiency. In addition, the inspection results found

that companies applying the “Comply or Explain”

approach do not exercise discretion in avoiding

improving the company’s corporate governance

compliance. It is concluded that the “Comply or

Explain” approach provides tangible financial

benefits to shareholders in terms of company value

and higher return on investment in shareholders'

shares. Finally, in, [27], the authors found a

positive link between the ROE and ROA and the

corporate governance of Danish companies under

“Comply or Explain”. In summary, previous studies

have satisfied the information content value of CG

over firm performance. However, the recent

development of the CG Code in Thailand and all

other emerging markets is not in wide-range

consideration. Therefore, this study offers a new

study hypothesizing as follows:

Hypothesis 1: CG Code is positively associated

with firm performance (Tobin’s Q).

4.2 The Informative Value of Audit Quality

on Firm Performance

Auditing standards state that auditors are required to

express their opinion on whether financial reporting

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is presented fairly. Based on the requirement,

auditors must obtain reasonable assurance that

financial reporting as a whole is free from material

misstatement of information whether due to fraud or

error. This occurs when the auditor collects

adequate and appropriate audit evidence to lessen

the risk of auditing or the risk that the auditor

expresses an improper opinion on the financial

reporting, [28]. This means auditors have a direct

responsibility to verify financial reporting whether

the statements are presented fairly or not. In

addition to the professional standards, economic

development is specified in terms of investment

activities which depend on the financial stability of

companies. Therefore, financial positions and

operational results representing financial stability

are important information for stakeholder decisions.

As a result, financial quality disclosed in financial

statements is necessary to make the information

transparent and to eliminate ambiguity. An audit

report acts as a communication medium between

investors and management. This means audit quality

is very important to stakeholders, [29]. The study of

audit quality was first presented by, [30]. In the

study, the joint probability of a particular auditor

detecting a violation of the accounting system of the

clients and reporting this violation is given as the

market value. In, [31], the authors expanded the

definition of audit quality to the level at which the

set of inherent characteristics of an audit meets the

requirements. Therefore, the audit process will

assess the probability of material misstatement and

decline the possibility of misstatement to an

appropriate level, [10]. Therefore, it is recognized

that audit quality has an impact on financial

reporting and has a strong effect on investor

confidence, [32]. In addition, external auditors play

an important and challenging role in ensuring the

reliability of financial reports, [33], [34].

Previous studies have been carried out to

investigate the informative value of audit reports.

Proxies representing audit quality have been defined

such as audit firm type (Big 4), and audit fees. In,

[35], the authors used Malaysian listed companies to

evaluate the impact of audit quality on firm

performance. They used audit firm rotation and

audit fees as audit quality proxies, while ROA and

Tobin's Q were used for firm performance. The

study concluded that audit quality was significantly

related to ROA and Tobin’s Q in a negative manner.

In, [36], the authors examined the impact of the

quality of firms' auditing and accounting standards

on financial performance in Malaysia during 2010-

2013. The study found that compliance with

financial reporting standards, disclosure of related

information, and audit firm size are positively

correlated with financial performance. In, [37], the

authors conducted a study examining the impact of

audit quality (i.e., multinational audit firms) on

stock price. They found that high-quality auditors

provided high-quality financial reports. In, [38], the

authors found that the higher the audit fees charged,

the better the reputation of an audit firm. The higher

the quality of audit services, the more trustworthy

the information provided to users of financial

statements. Listed companies were more willing to

pay above-average audit fees to reputable audit

firms. To avoid the risk of material misstatement

and thus harm to the company's reputation, a

company with a high reputation would inevitably

increase audit investment, which also led to an

increase in audit costs. In summary, to provide

clarity on whether audit quality has an impact on

business performance, especially for companies

listed in emerging markets, where social, political,

and economic changes are expected to have a direct

impact on the business. As a developing country,

audit confidence is so important that investors

cannot ignore it.

Although many researchers examined that audit

quality has a significant relationship with firm

performance, many other researchers found that it

does not correlate with the company's firm

performance. For example, [39], found that there

were conflicts concerning the impact of the auditor's

position on the audit quality. This study found that

the relationship of the audit firm with customers and

the size of the organization has a significant

influence on the audit quality, while the higher

auditor's position adversely affects the audit quality.

When extending the auditor's operational period, the

audit quality will decrease due to the growth in the

scope of the accrual at the discretion. To increase

the quality of the audit and the independence of the

auditor, the organization should circulate the audit

firm so that the audit can be done with care.

Improving audit quality is important for companies

to maintain investor confidence in financial

performance.

In this study, audit quality refers to the audit fees

in which the auditor has used the ability, skills,

expertise, advanced consulting, and experience in

auditing financial reports for the company to build

credibility and confidence among users of financial

reports. Audit fees also contain auditors applying

audit processes and quality control procedures

required by laws, regulations, and accounting and

auditing standards. Previous studies show that

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higher audit fees measured higher audit quality.

Therefore, there is no unambiguous support

hypothesis that audit quality is associated with firm

performance as follows:

Hypothesis 2: Audit quality is positively

associated with firm performance.

4.3 Moderating Effects of Audit Quality

As mentioned in Section 4.2 auditors have direct

responsibility to verify financial statements whether

the statements are presented fairly or not. Also,

auditors have an indirect responsibility to verify

financial statements. Because auditors must consider

whether the audit of the financial reporting reveals

any deficiencies in internal controls from the

performance of the audit. If auditors discover any

deficiencies in internal control as a result of

performing the audit, auditors must consider

whether individual deficiencies or combinations of

deficiencies are causing significant deficiencies that

affect financial statements or not. Then, auditors

must timely inform, in writing, any substantial

deficiencies of internal control identified during the

audit to those charged with governance, [40]. This

means that auditors have a moderating role via those

charged with governance to management. Then,

management uses the information to improve

companies’ operations. This is considered as a

moderating role to improve firm performance.

Previous studies investigating the moderating

role of external auditors are quite a few. For

example, [41], aimed to find empirical evidence on

the impact of shareholder activism on earnings

management. It is specifically interested in the

moderating role of external auditors. The study used

a sample group of 77 firms from the French Stock

Market from 2008 to 2012. The study found that

external auditors played a moderating role between

shareholder activism and earnings management. The

study, [42], studied audit quality as an efficient

control and monitoring mechanism that protects

users from opportunistic behavior and management

misconduct. The companies listed on the Stock

Exchange of Tunisia from 2013 to 2016 were used

for the study. The study found a negative

relationship between CEO compensation and tax

avoidance in well-audited companies. In addition,

audit quality as a moderating role also supported the

association between CEO compensation and tax

avoidance.

From the review of the literature, audit quality

could be considered as an independent variable

(direct effect) and a moderate variable to firm

performance. The direct effect means auditors

express opinions on whether financial statements are

presented fairly, while auditors communicate

deficiency of internal controls to those charged with

governance (i.e. audit committees) to improve

internal control deficiency; otherwise, these

deficiencies will affect financial statements as a

whole. This role can be considered as a moderating

role of auditors to the relationship between internal

controls to those charged with governance and firm

performance. Thus, the hypothesis can be developed

as follows:

Hypothesis 3: Audit quality influences the effect

of the CG Code on firm performance, such that the

effect of the CG Code on firm performance is stronger

for firms with higher audit quality.

4.4 Control Variables

4.4.1 Profitability

The profitability ratio indicates how successful a

business is in generating profits during a given

period. One way to evaluate performance is through

profit, where the profit and loss statement is a

financial statement that indicates the financial status

of a company for a certain time period. The

profitability ratio is important because it can attract

investor interest when a business is profitable. When

a business generates good profits, it shows investors

that the company is likely to operate smoothly in the

future, which can instill confidence and encourage

investment. Generally, communities with a broader

scope will measure the success of a company or

organization based on the company's ability to

manage efficiently, [43]. Therefore, in this research,

we will use profitability as a control variable in the

part of firm performance.

4.4.2 Investments

Property, plant, and equipment (PPE) are long-term

investments of companies. PPE is a measure of the

efficiency of generating revenue and cash flow in

the future. The higher the PPE, the more efficient

our investment will be. Companies investing in PPE

are considered as a good sign for investors because

they are significant investments for future economic

benefits. Purchasing PPE is a sign that management

is confident in the long-term outlook and

profitability of companies. Therefore, in this study,

PPE is used as a control variable in the part of firm

performance.

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5 Research Design

5.1 Samples and Analysis

The total number of companies listed on SET is 575

companies as of 31 December 2021. These listed

companies voluntarily and fully adopted the CG

Code of 97 companies (16.5%). However, only 95

companies are used in the analysis regarding

incomplete data. Then, data collection is performed

based on publicly available information including

annual reports, financial reporting, and all required

reports as listed companies.

This study mainly focuses on the moderating

effect of audit quality on the association between the

CG Code and Tobin’s Q. Presumably, the impact of

CG Code on firm performance will increase when

audit quality is considered as a moderating variable.

A moderating variable is used because the study

assumes that auditors play an important role in

reviewing corporate governance to assess whether

financial statements are presented fairly, and when

they find deficiencies in corporate governance that

affect the financial position and operations, they

report these deficiencies to those responsible for

governance. This means that auditors play a

moderating role in improving corporate

performance and should be considered as a

moderating variable, [44], [45].

5.2 Scoring of CG Code Disclosure

In this study, the CG code is evaluated to match the

more meaningful information with the more

practical items. The level of practice is determined

using the OECD-recommended guidelines for

corporate governance principles (CG Code). The

study covers all 137 practical aspects of the CG

Code Manual and establishes evaluation criteria that

focus on the company's disclosure results.

Following the modified Likert scale, the results are

classified into 5 levels: 5 = full disclosure, 4 =

extensive disclosure, 3 = moderate disclosure, 2 =

little disclosure, and 1 = least disclosure, [46]. Then,

the voluntary disclosures of the 95 listed companies

are subjected to a critical review, the results of

which are presented in Table 4.

5.3 Measurement, Hypothesis and

Regression Models

The information asymmetry is the fundamental

concept of this study which adopts Tobin’s Q as the

dependent variable. Tobin’s Q resulted from stock

prices times the outstanding common shares.

Therefore, once bad or good news is announced,

stock prices should reflect from these events, [47].

Furthermore, the study aims to investigate the

information value of voluntary disclosure as news

announced to stock markets. In, [7], [8], the

authors inserted that if companies provide reliable

disclosures to the public, the companies will totally

disclose information regardless of how good or bad

the information is. The study, [11], concluded that

one of the aims of voluntary disclosure was to get

favor in stock markets. Recently, corporate

governance, under the agency theory, has introduced

a new development called the CG Code voluntary

disclosure in the Stock Exchange of Thailand. This

opens the opportunity to carry out a study on

whether the CG code provides the information value

to firm performance or not. Therefore, Hypothesis 1

is developed. In addition to the CG Code voluntary

disclosure, the auditor-inspired confidence theory is

employed. In, [18], [19], the authors stated that

when audited financial reporting is misled because

the audit reports did not address misstatements and

errors, this resulted in a loss of the audit's

informative value. This comes to Hypothesis 2.

Hypothesis 3 comes from the belief that when

auditors plan their audit procedures, they are

required to scrutinize all information relating to

their clients to assess the overall risk. One of the

sources of risk assessment information is corporate

governance activities, [48]. In other words, the

efficiency of auditors may or may not directly affect

firm performance. They assess clients’ risk using

corporate governance information, as a result, the

corporate governance disclosure reflects the stock

price. Table 2 summarizes the variables in this

study.

Table 2. Summary of variable, measurement, and

expected sign

Variable

CODE

Measurement

Expected

sign

Tobin’s Q

TBQ

Market value of

shareholders’

equity and book

value of total

liabilities to

total assets

Corporate

Governance

Code

Total weighted

score to total

scores

Audit

Quality

Audit fee

divided by total

assets

Profitability

PROFIT

Profit (loss)

before tax to

total assets

Investment

INVEST

PPE to total

assets

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The following are the multiple regression models

to assess the impact of independent variables on

Tobin’s Q and to test the related hypotheses:

Hypothesis 1: CG Code is positively associated with

firm performance (Tobin’s Q).

TBQi = 𝛽0+ 𝛽1 CG Code + 𝛽2PROFIT𝑖+ 𝛽3INVEST𝑖

+ 𝜀𝑖 (1)

Hypothesis 2: Audit quality is positively associated

with firm performance.TBQi = β0+ β1CG Code +

β2AQ + β3PROFITi + β4INVESTi + εi

(2)

Hypothesis 3: Audit quality affects the effect of CG

Code on firm performance, such that the effect of

CG Code on firm performance is stronger for firms

with higher audit quality.

TBQi=β0+ β1CG Codei+β2AQi+(β3CG Codei×

AQi) + β4PROFITi + β5INVESTi + εi (3)

6 Findings

The following section is to explain the outcomes of

this present study. The explanation begins with

descriptive statistics indicating the characteristics of

the variables. Next, correlation matrix and

multicollinearity tests are shown. The result

indicates simple correlations among independent

variables. Then, multivariate regression outcomes

are displayed. Finally, the outcome of the

PROCESS macro to investigate the level of

moderating effect of the interesting variable is

scrutinized.

6.1 Descriptive Statistics

Descriptive statistics of variables are shown in

Table 3. It is found that firm performance (TBQ) is

averaged at 1.706 times and the standard deviation

is equal to 1.183, maximum value is 5.900 times,

the median value is 1.185 times and the minimum

value is 0.465 times. Audit quality (AQ) is averaged

at 0.638 times the standard deviation is equal to

0.398, the maximum level is 2.861 times, the

median level is 0.398 times and the minimum level

is 0.003 times. Profitability (PROFIT) is averaged at

the level of 0.074 times the standard deviation is

equal to 0.076, the maximum level is 0.507 times,

the median level is 0.057 times and the minimum

level is -0.061 times, Investment (INVEST) is

averaged at the level 0.253 times the standard

deviation is equal to 0.228 times, the maximum

level is 0.862 times, the median level is 0.226 and

the minimum level is 0.001 times.

Table 3. Descriptive statistics for variables

Variable

Mean

Med.

Std.

Min.

Max.

Firm

performance

TBQ

(times)

1.706

1.185

1.183

0.465

5.900

Moderator

(times)

0.638

0.398

0.638

0.003

2.861

Control

PROFIT

(times)

0.074

0.057

0.076

-0.061

0.507

INVEST

(times)

0.253

0.226

0.228

0.001

0.862

Table 4 shows all 8 principles of the CG Code of

companies having a level of CG Code compliance.

The overall mean is 3.88, and the standard deviation

is 0.369, the median score of exposure is in the

range of 3.86, the maximum is 4.91 and the

minimum is 3.11. When considering the mean of

each practice, the highest mean is in Principle 1 and

Principle 2 under the Set objective category, while

the lowest score is Principle 6, 7, and 8 under the

Carry out the specified objectives category. The

follow-up, evaluate performance, and disclose

information category, Principle 3, 4, and 5 is in the

middle.

6.2 Correlation Matrix and Multicollinearity

Analysis

Multicollinearity has been analyzed through the

analysis of correlation factors and Variable Inflation

factors (VIF). The Correlation matrix of variables is

illustrated in Table 5. The analysis found the highest

simple correlation between profitability (PROFIT)

and audit quality at .154, which indicates no

multicollinearity concern, [49]. Also, Table 6 shows

VIF ranging from 1.004-1.130, close to 1. This

confirms that multicollinearity is not an issue, [50].

These results suggest that multicollinearity among

the independent variables is not severe for

interpreting the results of regression analysis.

Table 4. Descriptive statistics of the CG Code

Mean Med. Std. Min. Max.

Principle 1 4.47 4.50 0.55 3.00 5.00

Principle 2 3.91 3.90 0.50 3.00 5.00

Principle 3 3.82 3.82 0.50 2.73 4.95

Principle 4 3.67 3.86 0.72 2.29 5.00

Principle 5 3.75 3.67 0.65 2.00 5.00

Principle 6 3.75 3.57 0.67 2.14 5.00

Principle 7 3.88 4.00 0.71 2.07 5.00

Principle 8 3.79 3.76 0.62 2.71 5.00

Total 3.88 3.86 0.37 3.11 4.91

CG Code

Set objective

Carry out the specified

objectives

Follow up, evaluate

performance and

disclose information

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Table 5. Correlation matrix of variables

Variable

CG Code

PROFIT

INVES

TBQ

CG Code

0.034

PROFIT

0.014

0.154

INVEST

0.058

-0.061

0.061

TBQ

.234**

.452***

.439***

-0.168

Notes: ** p < .05, *** p < .01

6.3 Inferential Results

Multivariate analysis results in Table 6 show the

three regression models. Model I shows the main

effects of CG Code and control variables on Tobin’s

Q. The findings indicate a goodness of fit as

indicated by the coefficient of determination

adjusted R2 with a value of 0.264. The CG Code

significantly relates to Tobin’s Q in a positive

manner (β = 0.240, p < .01). Also, the outcomes of

the multiple regression test indicate statistically

significant control variables influencing Tobin’s Q

positively included PROFIT, while INVEST

significantly negatively relates Tobin’s Q.

Model II shows the effects of CG Code, audit

quality (AQ), and control variables on Tobin’s Q.

The findings indicate a goodness of fit as indicated

by the coefficient of determination adjusted R2 with

a value of 0.397. The CG Code and audit quality

(AQ), are both significantly positively related to

Tobin’s Q. Also, the outcomes of the multiple

regression test indicated statistically significant

control variables influencing Tobin’s Q including

PROFIT positively, while INVEST significantly

negatively relates Tobin’s Q.

Model III shows the moderating effects of audit

quality on the impact of CG Code and control

variables on Tobin’s Q. The findings indicate

goodness of fit as indicated by the coefficient of

determination adjusted R2 with a value of 0.432.

The CG Code and audit quality (AQ), are both

significantly positively related to Tobin’s Q.

Additionally, the interaction effect of CG Code and

audit quality has a positive effect on Tobin’s Q (β =

0.213, p < .05). Audit quality positively moderates

the effect of CG Code on firm performance. Also,

the outcomes of the multiple regression test

indicated statistically significant control variables

influencing Tobin’s Q including PROFIT positively,

while INVEST was significantly related to s Tobin’s

Q negatively.

Table 6. Regression results

Variables

B(t)

Beta

p-value

Panel A

Model I

Dependent: Tobin’s Q

Constant

1.461

(7.977)

.001***

Main effect

CG Code

3.458

(2.703)

0.240

.008***

Control variable

PROFIT

INVEST

6.993

(5.052)

-1.088

(-2.361)

0.448

-0.210

.001***

.020**

Model summary

R Square

Adj.R2

ΔR Square

VIF

F-statistics

Durbin-Watson

0.288

0.264

1.004-1.007

12.253***

1.406

Panel B

Model II

Constant

1.495

(9.002)

.001***

Main effect

CG Code

3.264

(2.861)

0.226

.006***

Control variable

PROFIT

INVEST

6.072

(4.784)

-0.948

(-2.266)

0.389

-0.183

.001***

.026**

Moderator effect

0.691

(4.586)

0.373

.001***

Model summary

R Square

Adj.R2

ΔR Square

VIF

F-statistics

Durbin-Watson

0.423

0.397

0.135

1.005-1.031

21.035***

1.779

Panel C

Model III

Constant

1.477

(9.165)

.001***

Main effect

CG Code

4.246

(3.576)

0.294

.001***

Control variable

PROFIT

INVEST

5.897

(4.766)

-0.868

(-2.133)

0.376

-0.167

.001***

.036**

Moderator effect

0.712

(4.862)

0.384

.001***

Interaction terms

CG Code × AQ

6.295

(2.573)

0.213

.012**

Model summary

R Square

Adj.R2

ΔR Square

VIF

F-statistics

Durbin-Watson

0.463

0.432

0.040

1.018-1.130

6.619**

1.777

Notes: t statistics in parentheses, *** p < .01; ** p < .05; n=95 for

all models

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In summary, based on the three models, the

analysis shows that CG Code positively relates to

Tobin’s Q. PROFIT and INVEST significantly

relate to Tobin’s Q positively and negatively,

respectively. Audit quality (AQ) itself and an

interaction term with CG Code positively relates to

Tobin’s Q. The models show a goodness of fit as

indicated by coefficient of determination adjusted

R2 with an increasing value: Model I = 0.264,

Model II = 0.397, and Model III = 0.432 which

indicates the change of R2 from Model I to Model II

equals 0.135, while from Model II to Model III

equals to 0.040. This means that each step

considerably adds informative value to Tobin’s Q.

6.4 Further analysis: How audit quality

affects the effect of CG Code on Tobin’s Q

As mentioned earlier, this study mainly focuses on

the association between the CG Code and Tobin’s Q

when moderated by audit quality. Therefore, the

analysis proceeds further on how audit quality

impacts the association between the CG Code and

firm performance. The study, [51], recommends the

PROCESS macro for SPSS. The Hayes analysis

shows an interaction impact and interpreting

condition effect of the predictor at different

moderators. Figure 1 and Figure 2 show the effect of

the CG CODE on firm performance when

moderated by the three-audit quality level: low

(mean - 1SD), moderate (mean), and high (mean +

1SD). If audit quality as a moderating role is at a

low level (MAQ = -.6345, AQ = .0030), audit

quality has no significant impact on the association

between the CG Code and firm performance (p =

.8771, conditional effect = .2517). However, if audit

quality is at a moderate level (MAQ = .001, AQ =

.6380), and a high level (MAQ = .6384, AQ =

1.2764), it statistically and positively affects the

association between the CG Code and firm

performance, (p = .006, conditional effect 4.2456);

(p = .004, conditional effect 8.2644), respectively.

Explicitly, in firms with higher audit quality, the

effect of CG code is more likely to contribute to

higher firm performance. Specifically, for a firm

with a high level of audit quality, the CG code

affects its performance greater than the firm with

moderate audit quality; whereas for a low level of

audit quality firm, audit quality does not help CG

code to enhance firm performance. Thus, H3

supports that audit quality affects the effect of CG

code on firm performance, such that the effect of

CG code on firm performance is stronger for firms

with higher audit quality.

To investigate the significant interaction effect,

the graph is plotted as shown in Figure 2. It

demonstrates the significant interaction effect of

audit quality on the association between the CG

Code and Tobin’s Q. If audit quality is too low, no

moderating effect on the CG Code and firm

performance; however, if audit quality increases to a

certain level, significant effects are found as a

moderating variable between the CG Code and firm

performance.

Fig. 1: A statistical output of the association

between the CG Code and firm performance when

moderated by audit quality from PROCESS macro

for SPSS by Hayes (2012)

Fig. 2: A graph of the effect of the CG Code on

Tobin’s Q when moderated by audit quality

7 Discussion, Implementation, and

Conclusions

The purpose of this study is to perceive the

affiliation between the CG Code and firm

performance (Tobin’s Q), and also to observe the

informative value of the CG Code on firm

performance (Tobin’s Q) when moderated by audit

quality. The study employs the listed companies on

Test(s) of highest order unconditional interaction(s):

R2-chng F df1 df2 p

X*W .0400 6.6190 1.0000 89.0000 .0117

----------

Focal predict: MCG1 (X)

Mod var: MAQ (W)

Conditional effects of the focal predictor at values of the moderator(s):

MAQ Effect se t p LLCI ULCI

-.6345 .2517 1.6233 .1550 .8771 -2.9738 3.4771

.0000 4.2456 1.1873 3.5758 .0006 1.8864 6.6048

.6384 8.2644 2.2454 3.6806 .0004 3.8028 12.7260

0,00

0,50

1,00

1,50

2,00

2,50

3,00

0,6841 0,7660 0,8479

Tobin's Q

CG Code voluntary disclosure

Conditional effect of CG Code on Tobin's Q at the different levels of

audit quality

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the SET as a representative of emerging markets.

The 95 listed companies that fully and voluntarily

implemented the CG Code. Multivariate regression

analysis indicates significant findings.

The study initially and successfully developed

the judgmental score of the CG Code disclosed by

the companies. This result considers that listed firms

are more likely to voluntarily disclose information

that benefits their firms, [2], [7], [8]. The study also

finds that the CG Code voluntary disclosure

significantly positively relates to Tobin’s Q. The

result is in line with previous studies, [23], [27].

Furthermore, the analysis shows that the CG Code

and audit quality significantly positively relate to

Tobin’s Q. This outcome also agrees with previous

studies, [35], [37], [38]. Finally, audit quality could

be considered as a moderating role of firm

performance, [41], [42]. The overall conclusions are

the CG Code, profit, investment, and audit quality

are statistically and significantly associated with

firm performance. In addition, auditors flash firm

performance both in direct and moderating effects in

a positive manner. The significant contributions of

this study are as follows:

Firstly, the study finds that the CG Code is

adopted by Thai-listed companies in a wide range of

industries. The total score of the CG Code voluntary

disclosure is quite high (3.88/5). Even if the CG

Code score is considerably acceptable, the listed

companies just focus on setting objectives. A lower

score is on implementing and monitoring. This is

not a surprise finding, “Talk no done”. This result

stimulates standard setters who do not just facilitate

listed companies, on the other hand, they should

monitor together with enforcement listed companies

to pay attention to implementing and monitoring

rules and regulations, rather than just introducing

innovations, but no development.

Secondly, the result of the study agrees with

many prior studies that corporate governance is a

correct way to upsurge firm performance, [22], [23].

This result should be considered as good news. One

of the reasonable arguments is the CG Code is

considered a “rule base”, not a “principle base” as

mentioned in the Corporate Governance Principle.

Management knows what to do and easily follows

the rules. On the contrary, implementing according

to the Principle framework may cause unfollowing.

However, based on the high score of setting the

objectives category mentioned above, the board of

directors, regulators, and those in charge of

corporate governance should encourage and/or force

the management team to fully incorporate corporate

governance into activities. This is to demonstrate

that corporate governance is appropriate for all

countries rather than the countries in Anglo-Saxon

and Europe.

Thirdly, the analysis shows that audit quality

(proxied by audit fees) is still necessary for firm

performance both the direct effect and the

interaction effect with the corporate governance.

This can reduce the degree of complaint that no

economic usefulness of auditors. However, if higher

audit fees are equal to higher audit quality,

stakeholders, especially companies, should consider

more appropriate ways to increase firm performance

rather than pay more audit fees to get higher firm

performance.

Lastly, the effect of corporate governance and

audit quality on firm performance is a theme of

scholarly interest. Nevertheless, previous findings

are unconvincing and show contradictory results.

This study expands the scope of current research on

corporate governance, accounting, and finance.

First, it enhances the current limited research on the

impact of corporate governance and audit quality on

firm performance by focusing on listed companies

in emerging markets where corporate governance

practices are highly different from those in

developed markets. The finding highlights audit

quality moderates the influence of the CG Code on

firm performance; firms with higher audit quality

are more likely to have the impact of the CG Code

contributing to higher firm performance. Audit

quality influences the effect of the CG Code on firm

performance, such that the effect of the CG Code on

firm performance is stronger for firms with higher

audit quality. In particular, for companies with high

audit quality, the CG Code has a stronger effect on

company performance than for companies with

moderate audit quality, while for companies with

low audit quality, audit quality does not contribute

to the CG Code improving company performance.

Therefore, investors should consider high corporate

governance firms together with high audit quality to

get better performance firms.

This study pursues to empirically scrutinize the

association between the voluntary disclosure of

corporate governance and firm performance when

moderated by audit quality. The dataset is the Thai-

listed companies in 2021. The analysis shows that

corporate governance voluntary disclosure of the

listed companies is more likely to increase firm

performance. Also, the fundamentals of financial

positions including profitability and long-term

investments are necessary. In particular, the study

finds that audit quality itself increases firm

performance. Furthermore, when auditors help

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management to verify corporate governance

systems, the interaction even increases firm

performance. Outsiders, including investors and

regulators, need assurance in financial reporting and

corporate governance disclosures, which are

essential elements in fulfilling their trust, and this

study certainly conveys the message to various

stakeholders in financial markets.

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Contribution of Individual Authors to the

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Conflict of Interest

The authors have no conflict of interest to declare.

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