Assessing the Impact of External Auditing on Corporate Governance: Evidence from Libya

Abstract

This study examines the impact of external auditing on corporate governance in Libya from the perspective of external auditors, with a focus on four core governance dimensions: transparency, accountability, compliance with laws and regulations, and fraud prevention. Grounded in agency, stakeholder, and institutional theories, the study adopts a quantitative, post-positivist, and deductive research design. Primary data were collected through a structured online questionnaire distributed to external auditors operating across Libya. From an estimated population of 550 external auditors, 227 questionnaires were distributed, resulting in 186 valid responses suitable for analysis. Data were analyzed using the Statistical Package for the Social Sciences (SPSS), employing descriptive statistics, reliability analysis, Pearson correlation, and multiple regression techniques.

The empirical results indicate that external auditing has a significant and positive impact on overall corporate governance. Specifically, the findings reveal that external auditing significantly enhances transparency, accountability, compliance with laws and regulations, and fraud prevention, with compliance emerging as the strongest predictor of corporate governance effectiveness. These results suggest that, despite institutional and regulatory challenges, external auditing functions as a substantive governance mechanism in the Libyan context rather than merely a formal compliance requirement.

This study contributes to the existing literature by providing national-level empirical evidence from a developing economy and by incorporating the perspectives of external auditors, a group that has received limited attention in prior research. The findings have important implications for regulators, policymakers, and audit practitioners, highlighting the need to strengthen auditor independence, audit quality, and regulatory enforcement to enhance governance outcomes. The study also provides a foundation for future research on auditing and corporate governance in emerging and transitional economies.