Internal Audit Independence and Corporate Governance: Effects on Financial Performance

Abstract

Internal audit independence and effective corporate governance are widely recognized as critical mechanisms for enhancing organizational accountability and financial performance. This study examines the relationship between internal audit independence, corporate governance structures, and firm financial performance. Using an empirical research design, the analysis investigates how the autonomy of internal audit functions measured through reporting lines, organizational status, and freedom from managerial influence interacts with key corporate governance attributes such as board independence, audit committee effectiveness, and ownership structure. The findings indicate that higher levels of internal audit independence are positively associated with improved financial performance, reflected in stronger profitability, efficiency, and risk management outcomes. Moreover, the results suggest that corporate governance mechanisms play a moderating role, strengthening the impact of internal audit independence on firm performance when governance structures are robust. The study contributes to the literature by providing evidence on the complementary relationship between internal auditing and corporate governance and offers practical implications for boards, regulators, and policymakers seeking to enhance financial performance through stronger governance and independent assurance functions.