Assessing the Relationship Between Corporate Governance Mechanisms and Internal Audit Function Effectiveness

Posted: Dec 17, 2014

• Everly Carr
• Lydia Freeman
• Silas Monroe

Abstract

This research investigates the complex interplay between corporate governance mechanisms and internal audit function effectiveness through a novel methodological framework that integrates computational social science with organizational network analysis. Unlike traditional studies that examine governance components in isolation, this paper introduces a multi-dimensional effectiveness metric that captures both quantitative performance indicators and qualitative organizational dynamics. Our methodology employs a hybrid approach combining structural equation modeling with machine learning techniques to analyze data from 127 publicly traded companies across multiple industries. The findings reveal several non-linear relationships that challenge conventional wisdom, including the surprising discovery that board independence beyond optimal thresholds can paradoxically diminish audit effectiveness due to information asymmetry. Additionally, we identify a previously undocumented mediating effect of organizational learning culture that significantly influences how governance mechanisms translate to audit outcomes. The research contributes to both theoretical understanding and practical implementation by providing a dynamic framework for assessing governance-audit relationships that accounts for organizational context and temporal evolution. This study represents a significant departure from traditional governance research by incorporating computational methods to uncover complex, non-obvious relationships that have substantial implications for corporate governance theory and practice.