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1. Introduction
Internal audit (IA) is a fundamental part of corporate governance (CG), as it is one out of four key players of CG along with the audit committee, external audit and management (Gramling et al., 2004; (Goodwin-Steward and Kent, 2006). IA’s importance in corporate governance relies on its role as the only internal monitoring mechanism that operates on a daily basis (Prawitt et al., 2009; Soh and Martinov-Bennie, 2011). Nevertheless, prior research on IA effectiveness and its association with CG has been rather limited (Sarens, 2009; Mihret and Grant, 2017; Lenz et al., 2018). Our objective is to explore the effect of internal audit function (IAF) on IA effectiveness through the lens of institutional theory, which has been attracting increasing attention in the IA literature (Al-Twaijry et al., 2003; Arena et al., 2006; Arena and Azzone,2007; Mihret et al., 2010). Namely, we use normative isomorphism (one of three types of isomorphism in institutional theory) to assess the effect of IA professionalization on IA’s contribution to CG. The guidance of the Institute of Internal Auditors (IIA) is often considered as a source of normative pressure that leads to IA professionalization (Arena and Jeppesen,2010; Lenz et al., 2018). Lenz et al. (2018) concluded that IA identity is still not clear and this hampers IA effectiveness, even though one would expect that increased normative pressure from IIA would lead to increased IA effectiveness.
Addressing this research question, we set out to assess the effect of IIA guidance on IA’s contribution to CG. This paper forms part of a long-standing debate (Al-Twaijry et al., 2003; Arena and Azzone,2007; Abdolmohammadi, 2009; Arena and Jeppesen,2010; Abdolmohmmadi and Sarens, 2011; Lenz and Sarens, 2012). We conducted an empirical survey using questionnaires in listed companies on the Athens Stock Exchange. The sample included 49 companies and survey data was investigated in conjunction with publicly available data in annual reports. We explore IA with a country-specific study to shield the analysis against potential inconsistencies that may arise in the investigation of diverse institutional environments (Mat Zain et al., 2015). Greece constitutes an interesting case of CG and IA because of the unprecedented economic crisis that started in 2009 (Nerantzidis and Filos, 2014). In periods...