FIRM CHARACTERISTICS, DEMAND FOR EXTERNAL AUDITING SERVICES AND FINANCIAL PERFORMANCE: AN EMPIRICAL STUDY ON COOPERATIVE ENTERPRISES IN EAST JAVA, INDONESIA
AbstractThe purpose of this study is to examine the effects of firm characteristics(consisting of members, cooperative scale and liabilities) on the demand forexternal auditing services and their implications on financial performance.This study uses secondary data collected from the Department of Smalland Medium Enterprises and Cooperatives in East Java Province andthen analysed using path analysis. Results showed that the effect offirm characteristics consisting only of members and cooperative scale isstatistically significant on requests for external audit services. They alsoshowed that the effect of firm characteristics in terms of liabilities andthe demand for external auditing services is statistically significant onfinancial performance, indicating that the number of cooperative membersdetermines the voluntary requests for external audit services. Cooperativeswith large numbers of members tend to request for external auditing services.Large-scale cooperatives will increase the volume of transactions, whichmay cause errors in financial data and statements that will lead to requestsfor external auditing services. These requests are done to obtain accurateinformation. The agency theory indicates that cooperation with greatamounts of liabilities has to show better performance because activities aremonitored by stakeholders. In this case, financial reports are important informing business decisions.
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