Corporate Governance Reforms and Their Impact on Audit Effectiveness

Abstract

This research investigates the complex relationship between contemporary corporate governance reforms and audit effectiveness through a novel, multi-lens analytical framework. Moving beyond traditional compliance-based assessments, we
develop and apply a hybrid methodology that integrates computational text analysis of regulatory disclosures, network analysis of board-auditor relationships, and
agent-based modeling of governance dynamics. Our approach uniquely conceptualizes audit effectiveness not as a binary outcome but as a dynamic, emergent property
of the governance ecosystem, influenced by formal structures, informal networks,
and behavioral incentives. We analyze a proprietary dataset of 450 publicly traded
firms across three regulatory jurisdictions over a five-year period following significant governance reforms. Our findings reveal several counterintuitive insights: first,
that certain prescriptive reforms (particularly regarding audit committee composition) can create superficial compliance without substantive improvement in audit
quality; second, that the density and reciprocity of information networks between
boards and auditors are stronger predictors of effectiveness than structural mandates alone; and third, that reforms focusing on transparency of audit processes
yield more significant improvements in financial reporting quality than those focusing solely on committee independence. The study contributes a new theoretical
model of ’adaptive governance-audit alignment’ and provides evidence-based recommendations for designing reforms that foster genuine collaboration and skepticism
rather than procedural box-ticking. This research shifts the discourse from static
compliance to dynamic capability building within the audit-governance interface.