Skip to main content
SpringerLink
Log in

The role of internal auditing on corporate governance: its effects of economic and environmental performance

  • Research Article
  • Published:
Environmental Science and Pollution Research Aims and scope Submit manuscript

Abstract

Internal auditing has been an elementary and powerful component of corporate governance in business strategies. It is highly acknowledged as an important business control system in the realm of quality management. Business performance does not come by itself; it needs plenty of aids and capabilities. Existing studies have investigated the business performance with fewer outcomes in corporate sustainability, firm, and environmental performance. We present analysis and validated improvised hypothesis through structural equation modeling (SEM), using analysis of a moment structures (AMOS), on empirical evidence gathered from 304 Chief Executive Officer (CEOs) in Top Multinational Companies of Pakistan (TMCP). In this paper, we examine the role of internal audit functionality as an influencing factor via corporate governance in corporate sustainability, firm performance, and environmental performance. Moreover, business quality and performance are maintained using functions such as interests of shareholders, personnel and finance. Results suggest that internal audit functionality and corporate governance significantly influence corporate sustainability, firm performance, and environmental performance. Additionally, CEOs and top managers of TMCP are advised to concentrate on internal audit functionality with a mediating role of corporate governance that in turn encourages corporate sustainability, firm performance, and environmental performance.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Fig. 1
Fig. 2
Fig. 3
Fig. 4
Fig. 5
Fig. 6

Similar content being viewed by others

Data availability

Data used in the analysis are available upon reasonable request from the corresponding author.

References

  • Adu DA, Al-Najjar B, Sitthipongpanich T (2022) Executive compensation, environmental performance, and sustainable banking: the moderating effect of governance mechanisms. Bus Strateg Environ 31(4):1439–1463

    Article  Google Scholar 

  • AitSidhoum A, Serra T (2018) Corporate sustainable development. Revisiting the relationship between corporate social responsibility dimensions. Sustain Dev 26(4):365–378

    Article  Google Scholar 

  • Albertini E (2013) Does environmental management improve financial performance? A Meta-Analytical Review. Org Environ 26(4):431–457

    Article  Google Scholar 

  • Alda M (2019) Corporate sustainability and institutional shareholders: the pressure of social responsible pension funds on environmental firm practices. Bus Strateg Environ 28(6):1060–1071

    Article  Google Scholar 

  • Ali MO, Handayani W (2018) Impact of audit committee expertise and audit committee independence on internal audit function. Int J Soc Sci Econ Res 3(3):950–958

    Google Scholar 

  • Al-Matari EM, Al-Swidi AK, Fadzil FHB (2014) The effect of the internal audit and firm performance: a proposed research framework. Int Rev Manag Mark 4(1):34–41

    Google Scholar 

  • Ananzeh H (2022) Corporate governance and the quality of CSR disclosure: lessons from an emerging economy. Soc Bus Rev 17.2:280–306

  • Ardito L, Dangelico RM (2018) Firm environmental performance under scrutiny: the role of strategic and organizational orientations. Corp Soc Responsib Environ Manag 25(4):426–440

    Article  Google Scholar 

  • Ben-Hassoun A, Aloui C, Ben-Nasr H (2018) Demand for audit quality in newly privatized firms in MENA region: role of internal corporate governance mechanisms audit. Res Int Bus Financ 45:334–348

    Article  Google Scholar 

  • Bhatti MI, Awan HM (2004) The role of quality auditing in the continuous improvement of quality: lessons from Pakistani experience. Int J Audit 8(1):21–32

    Article  Google Scholar 

  • Bresciani S, Rehman SU, Alam GM, Ashfaq K, Usman M (2022) Environmental MCS package, perceived environmental uncertainty and green performance: in green dynamic capabilities and investment in environmental management perspectives. Rev Int Bus Strat 33(1):105–126

    Article  Google Scholar 

  • Calomiris CW, Carlson M (2016) Corporate governance and risk management at unprotected banks: national banks in the 1890s. J Financ Econ 119(3):512–532

    Article  Google Scholar 

  • Cheng M, Edwards D, Darcy S, Redfern K (2018) A tri-method approach to a review of adventure tourism literature: bibliometric analysis, content analysis, and a quantitative systematic literature review. J Hospital Tour Res 42(6):997–1020

    Article  Google Scholar 

  • Cohen B, Munoz P (2016) Sharing cities and sustainable consumption and production: towards an integrated framework. J Clean Prod 134:87–97

    Article  Google Scholar 

  • Comrey AL, Lee HB (1992) Interpretation and application of factor analytic results. In: Comrey AL, Lee HB (eds) A first course in factor analysis 2, 1992

  • Danescu T, Prozan M, Prozan RD (2015) The valances of the internal audit in relationship with the internal control–corporate governance. Procedia Econ Fin 26:960–966

    Article  Google Scholar 

  • Dao M, Xu H, Liu L (2019) Impact of the disclosure of audit engagement partners on audit quality: Evidence from the USA. Int J Audit 23(1):112–124

    Article  Google Scholar 

  • Desai R, Desai V, Libby T, Srivastava RP (2017) External auditors’ evaluation of the internal audit function: an empirical investigation. Int J Account Inf Syst 24:1–14

    Article  Google Scholar 

  • Ellwood S, Garcia-Lacalle J (2016) Examining audit committees in the corporate governance of public bodies. Public Manag Rev 18(8):1138–1162

    Article  Google Scholar 

  • Ferry L, Zakaria Z, Zakaria Z, Slack R (2017) Watchdogs, helpers or protectors?–Internal auditing in Malaysian Local Government. In Accounting Forum 41(4):375–389

    Article  Google Scholar 

  • Gao L, Kling G (2012) The impact of corporate governance and external audit on compliance to mandatory disclosure requirements in China. J Int Account Audit Tax 21(1):17–31

    Article  Google Scholar 

  • Garcia-Torea N, Fernandez-Feijoo B, de la Cuesta M (2016) Board of director’s effectiveness and the stakeholder perspective of corporate governance: do effective boards promote the interests of shareholders and stakeholders? BRQ Bus Res Q 19(4):246–260

    Article  Google Scholar 

  • Grewatsch S, Kleindienst I (2017) When does it pay to be good? Moderators and mediators in the corporate sustainability–corporate financial performance relationship: a critical review. J Bus Ethics 145(2):383–416

    Article  Google Scholar 

  • Groff MZ, Di Pietra R, Sitar AS (2016) Contemporary role of internal auditing in corporate governance. Dyn Relationships Manag J 5(1):51–63

    Article  Google Scholar 

  • Hair JF, Black WC, Babin BJ, Anderson RE, Tatham RL (2014) Pearson new international edition. Multivariate data analysis, 7th edn. Pearson Education Limited Harlow, Essex

    Google Scholar 

  • Ho S, Hutchinson M (2010) Internal audit department characteristics/activities and audit fees: some evidence from Hong Kong firms. J Int Account Audit Tax 19(2):121–136

    Article  Google Scholar 

  • Hu LT, Bentler PM (1999) Cutoff criteria for fit indexes in covariance structure analysis: conventional criteria versus new alternatives. Struct Equ Modeling: Multidiscip J 6(1):1–55

    Article  Google Scholar 

  • Jesover F (2001) Corporate governance in the Russian Federation: the relevance of the OECD principles on shareholder rights and equitable treatment. Corp Gov 9(2):79–88

    Article  Google Scholar 

  • Jung S, Nam C, Yang DH, Kim S (2018) Does corporate sustainability performance increase corporate financial performance? Focusing on the information and communication technology industry in Korea. Sustain Dev 26(3):243–254

    Article  Google Scholar 

  • Kaawaase TK, Nairuba C, Akankunda B, Bananuka J (2021) Corporate governance, internal audit quality and financial reporting quality of financial institutions. Asian J Accoun Res

  • Khan U, An ZY, Imran A (2020a) A blockchain ethereum technology-enabled digital content: development of trading and sharing economy data. IEEE Access 8:217045–217056

    Article  Google Scholar 

  • Khan U, Zhang Y, Salik M (2020b) The financial performance of Korean manufacturing SMEs: influence of human resources management. J Asian Fin, Econ Bus 7(8):599–611

    Article  Google Scholar 

  • Khan U, Zhang Y, Salik M (2020c) The impact of information technology on organizational performance: the mediating effect of organizational learning. J Asian Fin, Econ Bus 7(11):987–998

    Article  Google Scholar 

  • Kraus S, Rehman SU, García FJS (2020) Corporate social responsibility and environmental performance: the mediating role of environmental strategy and green innovation. Technol Forecast Soc Chang 160:120262

    Article  Google Scholar 

  • Li H, Dai J, Gershberg T, Vasarhelyi MA (2018) Understanding usage and value of audit analytics for internal auditors: an organizational approach. Int J Account Inf Syst 28:59–76

    Article  Google Scholar 

  • Liu Y, Xie F, Xu Z (2019) Board business connections and firm profitability: evidence from China. Emerg Mark Financ Trade 55(9):1954–1968

    Article  Google Scholar 

  • Manning B, Braam G, Reimsbach D (2019) Corporate governance and sustainable business conduct—effects of board monitoring effectiveness and stakeholder engagement on corporate sustainability performance and disclosure choices. Corp Soc Responsib Environ Manag 26(2):351–366

    Article  Google Scholar 

  • Mihret DG, Grant B (2017) The role of internal auditing in corporate governance: a Foucauldian analysis. Account Audit Accountab J 30(3):699–719

    Article  Google Scholar 

  • Miralles-Quirós MM, Miralles-Quirós JL, Redondo-Hernández J (2019) The impact of environmental, social, and governance performance on stock prices: evidence from the banking industry. Corp Soc Responsib Environ Manag 26(6):1446–1456

    Article  Google Scholar 

  • Norman CS, Rose AM, Rose JM (2010) Internal audit reporting lines, fraud risk decomposition, and assessments of fraud risk. Acc Organ Soc 35(5):546–557

    Article  Google Scholar 

  • Nunnally J, Bernstein I (1994) Psychometric Theory, 3rd edn. MacGraw-Hill, New York

    Google Scholar 

  • Ortas E, Gallego-Álvarez I, Álvarez I (2019) National institutions, stakeholder engagement, and firms’ environmental, social, and governance performance. Corp Soc Responsib Environ Manag 26(3):598–611

    Article  Google Scholar 

  • Ortiz-Villajos JM, Sotoca S (2018) Innovation and business survival: a long-term approach. Res Policy

  • Patón-Romero JD, Baldassarre MT, Rodriguez M, Piattini M (2019) Application of ISO 14000 to information technology governance and management. Comput Stand Interfaces 65:180–202

    Article  Google Scholar 

  • Quick R, Schenk N, Schmidt F, Towara T (2018) The impact of corporate governance on auditor choice: evidence from Germany. J Manage Governance 22(2):251–283

    Article  Google Scholar 

  • Rabóczki MB (2018) Internal audit functions and corporate governance: evidence from Hungary. Soc Econ 40(2):289–314

    Google Scholar 

  • Rafique MZ, Nadeem AM, Xia W, Ikram M, Shoaib HM, Shahzad U (2022) Does economic complexity matter for environmental sustainability? Using ecological footprint as an indicator. Environ Dev Sustain 24(4):4623–4640

    Article  Google Scholar 

  • Randhawa K, Wilden R, Hohberger J (2016) A bibliometric review of open innovation: setting a research agenda. J Prod Innov Manag 33(6):750–772

    Article  Google Scholar 

  • Rehman SU, Bhatti A, Mohamed R, Ayoup H (2019) The moderating role of trust and commitment between consumer purchase intention and online shopping behavior in the context of Pakistan. J Glob Entrep Res 9(1):1–25

    Article  Google Scholar 

  • Rehman SU, Kraus S, Shah SA, Khanin D, Mahto RV (2021a) Analyzing the relationship between green innovation and environmental performance in large manufacturing firms. Technol Forecast Soc Chang 163:120481

    Article  Google Scholar 

  • Rehman SU, Bhatti A, Kraus S, Ferreira JJ (2021b) The role of environmental management control systems for ecological sustainability and sustainable performance. Manag Decis 59(9):2217–2237

    Article  Google Scholar 

  • Rehman SU, Bresciani S, Yahiaoui D, Giacosa E (2022) Environmental sustainability orientation and corporate social responsibility influence on environmental performance of small and medium enterprises: the mediating effect of green capability. Corp Soc Responsib Environ Manag

  • Semrau T, Ambos T, Kraus S (2016) Entrepreneurial orientation and SME performance across societal cultures: an international study. J Bus Res 69(5):1928–1932

    Article  Google Scholar 

  • Siems M,  Macotela OA (2015) The G20/OECD principles of corporate governance 2015: a critical assessment of their operation and impact 2015:310–328

  • Steinbart PJ, Raschke RL, Gal G, Dilla WN (2018) The influence of a good relationship between the internal audit and information security functions on information security outcomes. Acc Organ Soc 71:15–29

    Article  Google Scholar 

  • Thoumrungroje A, Racela O (2013) The contingent role of customer orientation and entrepreneurial orientation on product innovation and performance. J Strateg Mark 21(2):140–159

    Article  Google Scholar 

  • Tumwebaze Z, Mukyala V, Ssekiziyivu B, Tirisa CB, Tumwebonire A (2018) Corporate governance, internal audit function and accountability in statutory corporations. Cogent Bus Manag 5(1):1527054

    Article  Google Scholar 

  • Turley S, Zaman M (2004) The corporate governance effects of audit committees. J Manage Governance 8(3):305–332

    Article  Google Scholar 

  • Tušek B (2015) The influence of the audit committee on the internal audit operations in the system of corporate governance–evidence from Croatia. Econ Res-Ekonomska Istraživanja 28(1):187–203

    Article  Google Scholar 

  • Vadasi C, Bekiaris M, Andrikopoulos A (2020) Corp Govern: The Int J Bus Soc 20(1):175–190

  • Waseem-Ul-Hameed FH, Ali M, Arif M (2017) Enterprise risk management (ERM) system: implementation problem and role of audit effectiveness in Malaysian firms. Asian J Multidiscip Stud 5(11):34–39

    Google Scholar 

  • Zhang Y, Khan U, Lee S, Salik M (2019) The influence of management innovation and technological innovation on organization performance. A mediating role of sustainability. Sustainability 11(2):495

    Article  Google Scholar 

  • Zhao S, Birkhofer H (2010) Review quality management-applying ISO 9000 standards on the review procedure of the design society. Paper presented at the DS 60: Proceedings of DESIGN 2010, the 11th International Design Conference, Dubrovnik, Croatia

Download references

Acknowledgements

The work in this paper is supported partially by research on the driving factors of PM2.5 emissions in Beijing, Tianjin, and Hebei and the collaborative emission reduction model. Additionally, CEOs, CAEs, and top managers of TMCP are advised to concentrate on internal audit functionality with a mediating role of corporate governance that in turn encourages corporate sustainability, firm performance, and environmental performance.

Author information

Authors and Affiliations

  1. China Center for Special Economic Zone Research Center, Shenzhen University, Shenzhen, China

    Umair Khan & Weili Liu

  2. China Institute of Quality and Economic Development, Shenzhen University, Shenzhen, China

    Weili Liu

Authors
  1. Umair Khan
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Weili Liu
    View author publications

    You can also search for this author in PubMed Google Scholar

Contributions

UK contributed to the study conception and design. Material preparation, data collection, and analysis were performed. WL is responsible for the supervision and conceived the presented idea.

Corresponding author

Correspondence to Umair Khan.

Ethics declarations

Ethics approval

Not applicable.

Consent to participate

Not applicable.

Consent for publication

Not applicable.

Competing interests

The authors declare no competing interests.

Additional information

Responsible Editor: Arshian Sharif

Publisher's Note

Springer Nature remains neutral with regard to jurisdictional claims in published maps and institutional affiliations.

Rights and permissions

Springer Nature or its licensor (e.g. a society or other partner) holds exclusive rights to this article under a publishing agreement with the author(s) or other rightsholder(s); author self-archiving of the accepted manuscript version of this article is solely governed by the terms of such publishing agreement and applicable law.

Reprints and permissions

About this article

Check for updates. Verify currency and authenticity via CrossMark

Cite this article

Khan, U., Liu, W. The role of internal auditing on corporate governance: its effects of economic and environmental performance. Environ Sci Pollut Res 30, 112877–112891 (2023). https://doi.org/10.1007/s11356-023-30363-5

Download citation

  • Received:

  • Accepted:

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s11356-023-30363-5

Keywords

Search

Navigation