Corporate Governance and Shareholders’ Value: The Mediating Role of Internal Audit Performance—Empirical Evidence from Listed Companies in Ghana

Abstract

The relationship between corporate governance and shareholder value remains a subject of contention, with studies reporting positive, weak, or context-dependent effects. Drawing on multiple theoretical perspectives, this study examines how and when corporate governance influences shareholder value, with a focus on the mediating role of internal audit performance (IAP) among listed companies on the Ghana Stock Exchange. Using an explanatory design and a sample of 300 respondents (74.3% response rate), we employed partial least squares structural equation modelling (PLS-SEM) to test the relationships. The findings show that corporate governance significantly enhances internal audit performance, which in turn improves shareholder value. In contrast, the direct impact of corporate governance on shareholder value is insignificant. Bootstrapped tests confirm a near-full mediation effect, positioning internal audit performance as the critical engine that translates governance structures into value creation. These results help clarify the inconsistent findings on the relationship between corporate governance and shareholder value in emerging markets. We provide regulators, boards, and management with a roadmap for strengthening internal audit capabilities and aligning audit and governance functions with corporate objectives to maximize shareholder value.

1. Introduction

Shareholders primarily expect favourable returns on their investments, encompassing both the preservation of their principal and potential capital appreciation (Shin, 2013). Shareholder value (SV) is defined as the economic benefits generated by a company and distributed to equity owners, including profit generation, wealth creation, and value enhancement; it materializes when returns exceed the minimum required return on equity and is commonly measured using dividends and share price appreciation (O’Connell & Ward, 2020). Effective corporate governance (CG) provides the structural framework that guides business operations, establishing regulations, defining roles, allocating resources efficiently, managing relationships, and mitigating risks, which in turn is essential for ensuring SV (Almashhadani et al., 2022).

Despite widespread recognition of the importance of corporate governance, mixed empirical evidence raises questions about how governance influences corporate performance and shareholder value. Rezaee (2025) documents a significant impact of corporate governance on shareholders’ value in U.S. firms; however, Boutrik et al. (2021) find a negligible impact in Nigerian contexts, suggesting that unobserved mediators may shape the relationship between corporate governance and shareholders’ value. The question of which tools ensure that a robust corporate governance system enhances shareholders’ value remains unresolved. High-profile corporate failures increase this tension. The collapse of Enron revealed serious violations of governance controls and exposed critical risks in financial reporting and managerial oversight (Nguyen, 2011). Similarly, the 2018 banking crisis in Ghana was attributed to weak CG frameworks and non-compliance with governance standards (Torku & Laryea, 2021; Osei et al., 2019). These crises challenge existing corporate governance policies (OECD, 2015; Roffia, 2025) and highlight the need for a robust internal audit to support governance processes (Eulerich & Eulerich, 2020).

While CG mechanisms such as board independence, audit committee expertise, and board composition are presumed to underpin shareholders’ value, their direct effects are inconsistent across empirical studies. Although board independence is widely regarded as a cornerstone of good governance, empirical studies paint a far more nuanced picture. In a survey of 78 manufacturing firms in West Java, Indonesia, greater board independence is associated with higher firm value (Mbate, 2023). In contrast, a study of 152 non-financial firms listed on the Pakistan Stock Exchange reveals that board independence is negatively associated with financial performance (Khan et al., 2024). Again, audit committee expertise yields contrasting outcomes, with Kieback et al. (2022) arguing that appointing members with both financial and industry expertise triggers positive abnormal returns.

In contrast, audit committee independence in Pakistan and the UK is associated with a decline in financial reporting quality (Hassan et al., 2025). Ganguli and Guha Deb (2021) agreed that board composition has a positive impact on firm value. From these findings, it appears that there is a corporate tool through which corporate governance has a positive impact on firm performance and shareholder value. It is also intriguing to note that the theories underpinning this study provide practical but limited perspectives on the contribution of corporate governance to shareholder value. The theoretical tensions between control and collaboration (agency theory vs. stewardship theory), economic performance and social responsibility (shareholder value theory vs. triple bottom line theory), and structural stability and strategic adaptability (resource dependence theory vs. dynamic capabilities theory) reflect the shifting and often competing expectations placed on governance systems in contemporary organizations.

This conflicting empirical evidence raises the question of why corporate governance systems enhance shareholder value in some firms, yet fail to deliver value in others. This inconsistency highlights a missing mechanism to ensure that corporate governance drives shareholder value. We posit that internal audit performance (IAP) is the critical organizational mechanism through which corporate governance (CG) may be translated into shareholder value. The mediating role of the internal audit performance in this relationship has been underexplored in the existing literature. Therefore, this study seeks to fill this gap by investigating how corporate governance (CG) mechanisms create shareholder value (SV), focusing on the mediating role of internal audit performance (IAP). It will also assess any residual direct corporate governance effects on shareholder value. To achieve this objectives, we posed the following questions:

• Does corporate governance directly influence shareholder value?
• To what extent does corporate governance improve internal audit performance?
• Does internal audit performance significantly affect shareholder value?
• Does internal audit performance mediate the relationship between corporate governance and shareholder value?

To address these questions, the study employs an explanatory research design using survey data from listed firms in Ghana and tests the mediation model using partial least squares structural equation modelling (PLS-SEM).

This study would advance governance research by demonstrating that internal audit performance is the critical mechanism through which the corporate governance system drives shareholder value. It contributes theoretically by moving beyond structural proxies of governance to highlight governance functionality. It would also provide the regulators, boards, executives, and auditors with guidance on strengthening internal audit capabilities. The findings also offer shareholders insights into how empowered audit functions enhance value creation.

The remainder of this paper is organized as follows: Section 2 reviews the relevant theoretical foundations and empirical literature, leading to the development of hypotheses. Section 3 outlines the research design, measurement of variables, and data analysis procedures. Section 4 presents the results, while Section 5 discusses the findings in light of prior studies and theoretical perspectives. Section 6 provides conclusions and practical recommendations, and Section 7 presents limitations and directions for future research.

2. Literature Review

2.1. Corporate Governance Practice in Ghana

Corporate governance encompasses the frameworks, policies, and practices that organizations implement to ensure accountability, transparency, fairness, and alignment of management activities with the interests of both shareholders and stakeholders (OECD, 2015). Research by Olawale and Obinna (2023) indicates that organizations with strong corporate governance frameworks tend to outperform those with weaker systems. Effective governance facilitates sound decision making, enhances transparency, and optimizes resource allocation, ultimately driving superior organizational performance. Moreover, corporate governance is vital for fostering best business practices by establishing robust processes that provide strategic direction, effective policies, and efficient procedures, all of which are essential for helping organizations achieve their objectives. These governance practices are also crucial for protecting the interests of shareholders and other stakeholders (Jacoby et al., 2019).

Ghana has effectively aligned its corporate governance framework with internationally recognized standards, notably the Principles of Corporate Governance established by the Organisation for Economic Co-operation and Development (OECD). In addition to embracing these global principles, several local regulatory bodies significantly influence corporate governance practices within the country. Key institutions include the Securities and Exchange Commission (SEC), the Bank of Ghana (BoG), the Companies Act of 2019 (Act 992), the National Insurance Commission (NIC), and the National Pensions Regulatory Authority (NPRA). These organizations provide comprehensive guidelines that address essential governance components, including board composition, audit and risk committee structures, shareholder rights, internal audit and control systems, as well as transparency and disclosure requirements.

2.2. Theoretical Framework

This study draws on multiple theoretical perspectives to build a holistic explanation of how corporate governance structures, mediated by the internal audit function, influence shareholder value. While no single theory adequately captures the complexities of governance and performance, an integrated approach provides a stronger foundation. At the center is the shareholders’ value theory, which posits that the primary goal of a corporation is to maximize returns for its investors through profitability and stock value (Friedman, 1970; Jensen, 2001). Its strength lies in its economic clarity, yet its narrow focus on financial gains excludes the broader ethical, social, and sustainability dimensions of governance. By positioning internal audit as a strategic partner in enforcing fiscal discipline, resource optimization, and sustainability alignment (Lenz & Enslin, 2025), this study bridges that gap, operationalizing shareholder value more comprehensively.

Complementing this is agency theory (Jensen & Meckling, 1976), which highlights the conflicts of interest between principals and agents. Here, internal audit emerges as a governance mechanism for reducing agency costs, ensuring transparency, and reinforcing accountability (Maurović & Hasić, 2014). However, the theory’s inherent mistrust between managers and shareholders risks creating adversarial governance relationships. To address this tension, stewardship theory (Davis et al., 1997) introduces the assumption that managers can be intrinsically motivated to act in the best interest of the firm, emphasizing trust and collaboration. Within this duality, internal audit serves a reconciling function: both as an independent monitor and as a supportive advisor, simultaneously enforcing accountability while fostering stewardship (Oseni, 2021). This balance reflects the practical reality of governance, where trust and control must coexist.

Resource dependence theory (Pfeffer & Salancik, 1978) adds an external dimension, stressing that organizational success depends on managing dependencies and uncertainties within the environment. However, it offers limited insight into the internal mechanisms for aligning resources with strategic needs. This study fills that void by situating the internal audit function as a key mechanism for assessing capabilities, ensuring efficient resource allocation, and facilitating adaptability in dynamic environments (Gyamera et al., 2023). Closely related, dynamic capabilities theory (Teece et al., 1997) underscores the ability of firms to reconfigure and renew resources in response to change. While conceptually powerful, it often lacks operational clarity on which internal functions sustain these capabilities. This research positions internal audit as a pivotal enabler of dynamic capabilities, advancing foresight, digital audit integration, risk anticipation, and sustainability governance (Helfat & Peteraf, 2009). In this way, internal audit shifts from a retrospective control function to a proactive driver of resilience and innovation.

Finally, Elkington’s (1994) triple bottom line (TBL) theory expands the scope of governance beyond financial value to include environmental and social outcomes—“people, planet, and profit.” While widely adopted in principle, TBL lacks clear operational pathways for integrating sustainability into corporate governance. While the triple bottom line framework emphasizes the integration of environmental and social considerations into governance, its operationalization requires robust control and audit mechanisms. Recent empirical evidence suggests that sustainable management accounting systems, supported by strong internal control functions, significantly strengthen corporate governance effectiveness (Johri et al., 2024). This integration ensures that corporate governance is not only compliant but also aligned with global sustainability reporting.

In conclusion, these theories form the bedrock of this study, offering a multi-theory explanation of how internal audit can enhance value creation, governance functionality, and organizational sustainability. Our review highlights strong empirical support for the internal audit’s role in enhancing risk management (Sarens & De Beelde, 2006), improving compliance (Egbunike & Egbunike, 2017), supporting board effectiveness (Pickett, 2012), and enabling strategic decision making (Zaidan & Neamah, 2022).

2.3. Empirical Literature and Hypotheses Development

A business is a nexus of relationships between managers and shareholders, where the latter expect continuous improvements in their share values. To meet these expectations, managers must establish governance frameworks that safeguard resources, optimize performance, and promote accountability. Corporate governance systems form the cornerstone of such frameworks, while the internal audit function operationalizes governance decisions to ensure alignment with shareholder interests. Drawing on shareholder value theory, agency theory, stewardship theory, resource dependence theory, dynamic capabilities theory, and the triple bottom line (TBL), this study examines how governance, audit performance, and shareholder value interact.

Shareholders’ value (SV), measured through dividends and stock price appreciation, represents the wealth created for equity holders. The shareholder value theory (Friedman, 1970; Jensen, 2001) underscores management’s responsibility to maximize these returns, and firms that prioritize SV retain investor confidence and attract new capital (How et al., 2019). Neglecting SV undermines long-term viability, while evidence from Saudi listed firms shows that governance-sustainability integration significantly improves firm value efficiency (Alofaysan et al., 2024). Therefore, we hypothesize the following:

H1: 

Corporate governance (CG) mechanisms positively influence shareholders’ value (SV).

Agency theory highlights conflicts between managers and shareholders, with governance structures designed to mitigate agency costs (Jensen & Meckling, 1976). Internal audit is therefore a key mechanism for transparency and compliance (Maurović & Hasić, 2014). By contrast, stewardship theory suggests that trusted managers may also act in the best interest of shareholders (Davis et al., 1997). Empirical studies confirm that effective boards, with diverse expertise and strong audit/risk committees, empower internal audit to play value-adding roles (Boutrik et al., 2021; Mwape, 2022). Weak governance, however, deprives auditors of independence and resources (Abudu et al., 2015; Nagy & Cenker, 2021). Relatedly, Alofaysan et al. (2024) show that board independence, meeting frequency, and sustainability practices improve firm value, while Johri et al. (2024) demonstrate that sustainable accounting practices strengthen internal control systems and governance. These insights lead to the second hypothesis:

H2: 

Corporate governance (CG) mechanisms positively improve internal audit performance (IAP).

Internal audit performance reflects a firm’s ability to mobilize resources and sustain competitiveness, consistent with resource dependence theory (Pfeffer & Salancik, 1978) and dynamic capabilities theory (Teece et al., 1997). Effective internal audit reduces compliance costs, enhances efficiency, and improves profitability (Postula et al., 2020; Oppong et al., 2024). It also safeguards reputation by monitoring compliance (Nwadike & Wilkinson, 2022) and increasingly addresses ESG and sustainability risks (Egbunike & Egbunike, 2017; Inyang et al., 2021; Ramadhan et al., 2023). Internal auditors embed risk-aware cultures (Sarens & De Beelde, 2006; Pickett, 2012; Weekes-Marshall, 2020) and contribute to efficiency through proactive risk management (Zaidan & Neamah, 2022; Hilmi & Fatine, 2022). With digitalization, they further strengthen cyber resilience and data protection (Bozkus & Caliyurt, 2018; Lois et al., 2020). Thus:

H3: 

Internal audit performance (IAP) has a significant positive effect on shareholders’ value (SV).

Finally, while governance structures can establish the potential for value creation, the TBL perspective (Elkington, 1994) suggests that translating this potential into outcomes requires mechanisms that embed financial, social, and environmental accountability. Internal audit serves this mediating role by operationalizing governance through risk-based controls, sustainability assurance, and strategic insights. Prior studies confirm that governance generates shareholder value only when supported by effective auditing (Sarens & De Beelde, 2006; Zaidan & Neamah, 2022). Supporting this, Johri et al. (2024) find that sustainable management accounting influences governance effectiveness via internal control systems, paralleling the mediating role proposed here. Thus, the final hypothesis is advanced:

H4: 

Internal audit performance (IAP) mediates the relationship between corporate governance mechanisms and shareholders’ value (SV).

2.4. Conceptual Framework

Extant studies provide conflicting evidence on whether corporate governance (CG) mechanisms directly enhance shareholders’ value (SV). This inconsistency suggests that CG’s impact is contingent on an internal mechanism that translates formal oversight into tangible performance gains. We posit internal audit performance (IAP) as that mechanism. Agency theory clarifies why firms establish boards, committees, and risk-oriented policies to curb opportunism and align managers with owners. However, it remains largely silent on how the information generated by these mechanisms is integrated into everyday processes. The resource-based view (RBV) treats internal audit performance (IAP) as a value-creating capability encompassing risk management, compliance assurance, internal controls, and resource orchestration; however, it provides little insight into the governance inputs required to build and sustain this capability. Stewardship theory, meanwhile, celebrates trust and collaborative problem-solving but underestimates the need for formal structures and specialized skills to translate good intentions into measurable Value. Our framework bridges these blind spots by specifying the internal audit function as an enabler of the impact of corporate governance on shareholders’ Value, thereby offering an integrated, testable mechanism that integrates structure, capability, and outcome. Figure 1 presents the conceptual framework.

Building on IIA (2020) and Pickett (2012), we conceptualize internal audit performance (IAP) as the degree to which the internal audit function delivers both assurance and advisory services that strengthen risk governance, ensure regulatory compliance, fortify internal controls, and optimize the use of organizational resources. In practice, high-performing audit teams maintain dynamic compliance registers, educate management on evolving regulatory requirements, embed enterprise risk management frameworks across business units, and streamline information and resource flows to eliminate waste and bottlenecks. In doing so, they convert governance intentions into day-to-day operational discipline and, ultimately, sustained value creation for shareholders.

Corporate governance encompasses the structures and processes that uphold accountability, transparency, and alignment with shareholder interests (OECD, 2015; Hui, 2018). We focus on mechanisms where prior evidence is mixed. Board independence and diverse board composition can enhance oversight, enrich debate, and mitigate managerial opportunism; however, in highly concentrated ownership settings, they may also slow decision making and dilute firm-specific agility. Similarly, audit and risk committees typically strengthen reporting quality and control rigor. However, when under-resourced or created merely for compliance optics, they become symbolic, adding bureaucracy without substance. Finally, the board’s risk attitude and technical expertise, too often ignored in governance studies, are pivotal for empowering internal auditors, prioritizing material risks, and ensuring that governance prescriptions are translated into proactive, value-protecting actions. By specifying these levers and linking them to IAP, our framework moves beyond generic “good governance” claims and offers a testable mechanism that clarifies when and how corporate governance creates shareholder value.

To isolate the unique mediating effect of internal audit performance (IAP) on the Corporate Governance–Shareholder Value relationship, we include industry sector and regulatory intensity as control variables. The industry sector controls (manufacturing, services, trading) account for sector-specific governance norms, competitive dynamics, capital intensity, and risk profiles that can shape both governance practices and value outcomes. In contrast, regulatory intensity captures variation in external oversight inspection frequency and sanction severity, which directly influence the scope and rigor of internal audit activities and can independently affect firm performance and valuation. By holding these contextual factors constant, we ensure our estimates of the CGM → IAP → SV pathway reflect the true operational role of internal audit, rather than confounding differences in industry or regulatory regimes.

3. Research Methodology

3.1. Research Design and Sample

A research design is a strategic blueprint that guides data collection, measurement, and analysis, minimizing bias and enhancing inferential validity (Pandey & Pandey, 2021). Given our interest in testing a mediation mechanism (CG → IAP → SV) and isolating it from contextual influences, we adopt an explanatory, mixed-method design (Babbie, 2020). The population comprises all 37 firms listed on the Ghana Stock Exchange as of 31 December 2023. We employed multistage sampling: first categorizing firms into services, trading, and manufacturing and then conducting proportionate simple random sampling, which resulted in 30 firms (81.1%). Within each firm, purposive sampling targeted 10 key role-holders involved in corporate governance and internal audit, including the internal audit auditors, finance officers, accountants, CEOs, audit committee chairs, and independent auditors at the time of the study, yielding 300 respondents.

The internal auditors lead the risk-based audit plan; assess internal controls, compliance, and operational risks; and advise on control improvements and assurance innovations (e.g., analytics, automation). They are functionally accountable to the Board/Audit Committee to safeguard independence and administratively report to the CEO/MD for the day-to-day affairs of the company. Audit committee chairpersons provide board-level oversight of the internal audit charter, independence, scope, and resources; approve the audit plan; review significant findings and management’s remediation; and ensure alignment between governance objectives and assurance activities. They also coordinate with the external auditor and management on financial reporting risk. The independent auditors provide independent assurance on the financial statements and the adequacy of the control environment. They evaluate the effectiveness of the internal audit function and, where appropriate, place reliance on IA work. The chief executive officer/managing directors set the tone at the top, ensure risk ownership and implementation of audit recommendations, and provide the internal audit function with authority, access, and resources. The finance officers/CFO ensure effective financial management and reporting; design and operate internal controls over financial reporting. The accountants execute day-to-day financial processes (recording, reconciliations, reporting), operate key controls, and provide the evidence base for both internal and external audits.

We employed PLS-SEM (XSTAT Premium) because the model is prediction-oriented and includes a higher-order construct (IAP), the data are non-normal, and mediation paths require bootstrapped indirect-effect testing (Hair et al., 2017). Primary data were gathered via structured questionnaires (core constructs) and semi-structured interviews (contextual clarification). Items were adapted from validated scales: corporate governance (Agyei-Mensah, 2018), Internal Audit Performance (Berhe et al., 2016), and shareholders’ value (perception-based measures, following Omran et al., 2008; Klapper & Love, 2004). Semi-structured interviews were conducted with the 20 internal auditors and 20 audit committee chairpersons who had also completed the questionnaire, in order to elicit deeper, qualitative insights. Expert review and a pre-test with 10 firms refined wording; Cronbach’s α = 0.76 confirmed acceptable reliability.

3.2. Variable Definition and Measurement

Table 1. Variable definition and measurement.

Construct	Conceptual Definition	Key Indicators	Measurement Approach	Empirical Support (Illustrative Studies)
Corporate Governance (CG)	Formal structures, policies, and board attributes that ensure accountability, transparency, and alignment of managerial actions with shareholder interests	Board Independence (BI); Board Composition & Diversity (BCD); Corporate Governance Committees (CGC) and Board Risk Attitude (BRA).	Reflective Likert-type items, 1–5	Adapted from Agyei-Mensah (2018); Puni and Anlesinya (2020); Danoshana and Ravivathani (2019); Fariha et al. (2022); Konak (2023)
Internal Audit Performance (IAP) (Second-order)	The extent to which the internal audit function delivers assurance and advisory services that strengthen risk governance, compliance, internal controls, and resource optimization	First-order dimensions: Compliance Management Performance (CMP), Risk Management Performance (RMP), Internal Control Systems (ICS), and Internal Resource Management Performance (IRMP)	Reflective Likert-type items, 1–5	Adapted from Berhe et al. (2016); Turetken et al. (2020); Oppong et al. (2024); dos Reis Cardillo and Basso (2025)
Shareholders’ Value (SV)	Perceived economic benefits delivered to equity owners	Perceptions of long-term value creation for shareholders	Reflective Likert-type perception items	Omran et al. (2008); Klapper and Love (2004); O’Connell and Ward (2020)
Industry (Control)	Sectoral context shaping governance demands and audit scope	Dummy variables: Manufacturing (IND_M), Services (IND_S), Trading (IND_T); baseline = Other	Dummy coding	Dalton et al. (1998); Rezaee (2025)
Regulatory Intensity (Control)	Degree of external oversight and compliance burden imposed on the firm’s sector	Frequency of inspections and sanction severity (fines measured in monetary terms and disciplinary actions)	Likert items 5-point	Carcello et al. (2002) Wang et al. (2024)

below presents the variables definition and measurement.

3.3. Structural Equations with Controls

The study uses a variance-based PLS-SEM approach to model the causal relationship from corporate governance (CG) to shareholders’ value (SV), mediated by internal audit performance (IAP), with industry and regulatory intensity included as controls. Two levels of specification are presented: the measurement models (how latent variables are operationalized from observed indicators) and the structural models (how latent variables are linked causally.

3.3.1. Measurement Models

Corporate governance (CG) is conceptualized as a latent construct measured by four observable indicators: Board Independence (BI), Board Composition/Diversity (BCD), Corporate Governance Committees (CGC), and Board Roles/Activities (BRA). Each observed variable loads onto the CG latent construct with factor loadings (λ₁–λ₄), and ε_CG represents the measurement error.

Internal audit performance (IAP) is also a latent construct, operationalized through four dimensions widely recognized in internal auditing literature: Compliance Management Performance (CMP), Risk Management Performance (RMP), Internal Control Performance (ICP), and Internal Resource Management Performance (IRMP). Their loadings (λ₅–λ₈) capture how strongly each dimension reflects the overall IAP construct, while ε_IAP captures error.

Shareholders’ value (SV) is treated as an endogenous latent variable reflecting perceptions of long-term value creation for shareholders as noted by Omran et al. (2008); Klapper and Love (2004); O’Connell and Ward (2020).

Therefore, the equations are defined as:

1.

CG = λ₁ BI + λ₂ BCD + λ₃ CGC + λ₄ BRA + εCG

2.

IAP = λ₅ CMP + λ₆ RMP + λ₇ ICP + λ₈ IRMP + ε_IAP

3.3.2. Structural (Mediation) Model with Controls

The third equation specifies IAP as a function of corporate governance (CG) and the control variables. Specifically, β₁ represents the effect of governance mechanisms on audit performance. Control variables include three industry dummies (IND_M (manufacturing), IND_S (services), and IND_T (trading)) and REG_INT (regulatory intensity), with coefficients γ₁–γ₄. The fourth equation specifies SV as a function of both CG and IAP, with coefficients β₂ (direct CG→SV) and β₃ (IAP→SV). The same control variables are included with coefficients γ₅–γ₈, and residual terms ζ₁ and ζ₂ capture unexplained variance.

3.

IAP = β₁ CG + γ₁ IND_M + γ₂ IND_S + γ₃ IND_T + γ₄ REG_INT + ζ₁

4.

SV = β₂ CG + β₃ IAP + γ₅ IND_M + γ₆ IND_S + γ₇ IND_T + γ₈ REG_INT + ζ₂

Here,

• β = structural path coefficients of interest (direct and mediated effects).
• γ = coefficients for control variables.
• λ = factor loadings in the measurement model.
• ε, ζ = measurement and structural error terms, respectively.

All path coefficients are estimated via PLS-SEM using bootstrapping. Significance is assessed by bootstrapped t-statistics (two-tailed, α = 0.005). Mediation is confirmed if the indirect path CG → IAP → SV is significant and the direct CG → SV path becomes weaker (partial mediation) or non-significant (full mediation) once IAP is included. This approach aligns with prior studies linking governance, audit quality, and firm value (Boutrik et al., 2021; Turetken et al., 2020).

The model positions corporate governance as an exogenous driver, internal audit performance as the mediating capability through which governance is operationalized, and shareholders’ value as the outcome. Control variables adjust for heterogeneity across industries and regulatory environments, ensuring the effects identified are robust and reliable.

4. Results

4.1. Descriptive Statistics

Table 2. Descriptive statistics.

Variable	Observations	Minimum	Maximum	Mean	Std. Deviation
BCD	223	1.000	5.000	3.395	1.014
CGC	223	1.000	5.000	3.249	1.065
BOI	223	1.000	5.000	3.300	1.048
BRA	223	1.000	5.000	3.646	0.926
RMP	223	1.000	5.000	3.000	1.092
CMP	223	1.000	5.000	3.049	1.165
IRMP	223	1.000	5.000	3.126	1.157
ICP	223	1.000	5.000	3.291	1.100
SV	223	1.000	5.000	3.085	1.074
Trading	223	0.000	1.000	0.085	0.279
Service	223	0.000	1.000	0.462	0.499
Manufacturing	223	0.000	1.000	0.453	0.498
Frequency	223	1.000	5.000	3.475	0.951
Sanction	223	1.000	5.000	2.919	1.149

below presents the descriptive statistics.

From Table 2, the shareholders’ value (SV) was rated at a moderate level (M = 3.09, SD = 1.07), signaling neither clear satisfaction nor outright dissatisfaction with value creation. This middling score is consistent with concerns about high operating costs and potential managerial self-interest in the Ghanaian context, an agency misalignment that reinforces the need for effective monitoring and incentive structures. Corporate governance (CG) mechanisms clustered around the mid-point but with meaningful dispersion (SD ≈ 0.93–1.07). Board risk attitude (BRA) recorded the highest mean (M = 3.65, SD = 0.93), indicating that boards are reasonably engaged in risk oversight. Board composition/diversity (BCD: M = 3.40, SD = 1.01), board independence (BOI: M = 3.30, SD = 1.05), and Corporate governance committee structures (CGC: M = 3.25, SD = 1.07) indicate a moderate presence of formal governance levers, but also variability across firms precisely the heterogeneity that may explain mixed CG value findings in prior studies. Internal audit performance (IAP) dimensions were similarly moderate. Internal control process (ICP) was the highest (M = 3.29, SD = 1.10), followed by internal resource management performance (IRMP: M = 3.13, SD = 1.16), compliance management performance (CMP: M = 3.05, SD = 1.17), and risk management Practice (RMP: M = 3.00, SD = 1.09). The pattern suggests that firms prioritize control design but lag in proactive risk and compliance management, which is precisely the capability gap our mediation model expects IAP to address.

Contextual controls revealed that approximately 8.5% of firms were involved in trading (M = 0.085, SD = 0.28) and 46.2% in services (M = 0.462, SD = 0.50), with the remainder in manufacturing/other sectors. Regulatory intensity was moderate to high in terms of inspection frequency (M = 3.48, SD = 0.95), but only mid-level in terms of sanction severity (M = 2.92, SD = 1.15), implying that external pressure is present but not uniformly stringent. Taken together, these descriptive portray governance and audit infrastructures that exist but are uneven, providing a strong empirical rationale to test whether IAP mediates the CG–SV relations and to examine how regulatory pressure and industry setting condition that mechanism.

4.2. Data Quality and Measurement Model Assessment

Before conducting hypothesis testing, we thoroughly evaluated our measurement model. The ANOVA confirmed adequate item variability (F = 14.10, p < 0.0001), and all multi-item constructs surpassed established reliability standards. Corporate governance mechanisms (CGMs) had Cronbach’s α = 0.777 and composite reliability (ρc) = 0.858, while internal audit performance (IAP) achieved α = 0.870 and ρc = 0.911. Convergent validity was also satisfactory, with AVE values above 0.50 (CGM = 0.603; IAP = 0.719). Regulatory intensity (REG) was modelled as a single composite (α = 0.113) because of its two weakly correlated indicators, and industry dummies were included as single-indicator controls. Discriminant validity was confirmed—each construct’s AVE was higher than its greatest squared inter-construct correlation—and cross-loadings indicated that every indicator loaded at least 0.10 higher on its construct than on any other. The indicator-level collinearity was minimal (VIFs 1.32–2.27). See Appendix A for detailed results.

Finally, to ensure that no single case unduly influenced our PLS-SEM results, we conducted outlier diagnostics by examining standardized DModX and DModY values for each observation. Figure 2 below presents the details.

The outlier diagnostics based on standardized DModX and DModY in Figure 2 indicated that only six observations exceeded the ±2.0 threshold on at least one dimension. A sensitivity analysis excluding these points produced negligible changes in the structural estimates (Δβ < 0.02), so all cases were retained for the final model. Collectively, these results offer a solid foundation for testing our structural hypotheses.

4.3. Structural Model and Hypotheses Testing

Having established the soundness of our measurement model, we now turn to evaluating the structural relationships postulated by our internal audit and corporate governance model. In this section, we first examine the explanatory power of the model by reporting variance explained (R²) for both internal audit performance (IAP) and shareholders’ value (SV), as well as predictive relevance (Q²) for SV.

Table 3. Explanatory and predictive relevance.

Construct	R2	R2 (Bootstrap)	Standard Error	Critical Ratio (CR)	Lower Bound (95%)	Upper Bound (95%)	Q2 cum
IAP	0.256	0.273	0.048	5.306	0.177	0.377	0.203
SV	0.552	0.571	0.060	9.217	0.447	0.679	0.487

displays the explanatory and predictive relevance of the model.

The measurement model for Internal Audit Performance (IAP) explained 25.6% of its variance (R² = 0.256; bootstrapped R² = 0.273; SE = 0.048; CR = 5.306; 95% CI [0.177, 0.377]), with a Stone–Geisser Q² cum of 0.203, indicating acceptable predictive relevance. Shareholders’ value (SV) was even better accounted for, with R² = 0.552 (bootstrapped R² = 0.571; SE = 0.060; CR = 9.217; 95% CI [0.447, 0.679]) and Q² cum = 0.487, reflecting strong out-of-sample predictive power of our model.

The estimated path coefficients for the hypothesized direct effects corporate governance mechanisms (CGMs) and regulatory intensity (REG) on IAP; and IAP, CGM, REG, and industry controls on SV, along with their bootstrapped standard errors, critical ratios, confidence intervals and indirect effects (bootstrapped) are presented in

Table 4. Estimated path coefficient and indirect effects (bootstrapped).

Endogenous Construct	Metric/Path	β (Boot)	SE (Boot)	t/CR	VAF	Decision
IAP	Model fit		0.046	5.553
	CGM → IAP	0.365	0.04	9.189		Supported
	REG → IAP	0.24	0.051	4.826		Control sig.
	IND → IAP	0.019	0.069	0.28		Not significant
SV	Model fit/predictive relevance		0.06	9.217
	IAP → SV	0.706	0.057	12.392		Supported
	CGM → SV	0.086	0.048	1.787		Not significant
	REG → SV	−0.024	0.06	−0.394		Not significant
	IND → SV	0.004	0.074	0.048		Not significant
Indirect effects (bootstrapped)	CGM → IAP → SV	0.257	0.032		75% (substantial)	Substantial mediation
	REG → IAP → SV	0.17	0.041			Indirect-only
	IND → IAP → SV	0.018	0.047			Not significant

and Figure 3 below.

Our first hypothesis predicted a direct positive effect of corporate governance mechanisms (CGM) on shareholder value (SV). Contrary to expectations and much of the traditional governance literature (Puni & Anlesinya, 2020; Danoshana & Ravivathani, 2019), the estimated path coefficient was small and non-significant (β = 0.086; SE = 0.048; t = 1.787; p > 0.05) and demonstrated in Table 4 and Figure 3. This finding aligns with recent evidence from Konak (2023) and Fariha et al. (2022), who report that independent boards and specialized committees may sometimes slow decision making, dilute accountability, or lack firm-specific insight, thereby failing to create immediate market or accounting gains. The null result suggests that formal governance structures alone are insufficient to move the value needle. Instead, CG mechanisms appear to set the stage without guaranteeing returns until they are operationalized through internal control and audit processes. This helps explain why empirical studies in emerging-market contexts often find mixed or absent CG→SV links (Boutrik et al., 2021; Rezaee, 2025). Our results thus reinforce the argument that value creation requires more than board composition or committee charters. It requires effective follow-through, which we demonstrate through robust internal audit performance (IAP). Consequently, we reject H1 and refocus on the mediating role of IAP in translating governance into shareholder gains.

Hypothesis 2 posited that stronger corporate governance mechanisms (CGM) would translate into higher internal audit performance (IAP), in line with agency theory’s emphasis on robust monitoring and stewardship theory’s focus on collaborative oversight. Empirically, the CGM → IAP path was highly significant (β = 0.365, SE = 0.040, t = 9.189, p < 0.001), indicating that firms with more independent boards, diverse skill sets, and active audit and risk committees tend to develop more capable and value-adding internal audit functions. This result is consistent with Boutrik et al. (2021), who found that firms with specialist audit committee expertise exhibit higher audit quality and reporting reliability. Similarly, Mwape (2022) documents that independent directors significantly enhance audit objectivity by shielding internal auditors from managerial pressure. Our findings extend these studies by quantifying the direct impact of the broader CGM bundle, including board independence, committee structures, and board risk attitude, on the composite IAP construct, which encompasses risk management, compliance, controls, and internal resource management. Board composition and diversity emerged as the strongest driver of internal audit performance (weight = 0.364), underscoring how a mix of skills, backgrounds, and perspectives equips audit teams with richer insights and broader stakeholder alignment. Close behind, board independence carried a substantive weight of 0.336, reflecting the critical role that non-executive directors play in safeguarding auditor objectivity and ensuring unfettered access to information. The audit and risk committees also made a meaningful contribution (weight = 0.322), highlighting that formally empowered committees, especially those with financial and industry expertise, provide essential oversight, guidance, and resources to the internal audit function. Together, these weights reveal that while all three governance levers are important, diversity in board composition has a marginally larger impact on audit effectiveness, likely because it brings complementary knowledge and challenge processes that drive robust risk assessment and control innovation.

Our third hypothesis asserted that superior internal audit performance (IAP) would translate into greater shareholders’ value (SV). The empirical evidence strongly supports this linkage: the IAP→SV coefficient was large and highly significant (β = 0.706, SE = 0.057, t = 12.392, p < 0.001). This finding aligns with Turetken et al. (2020), who document that firms with proactive audit functions incur lower compliance costs. and improved profit margins. Theoretically, this result aligns with the resource-based view, which posits that an effective internal audit is a firm-specific capability that safeguards assets, uncovers inefficiencies, and guides management toward value-enhancing opportunities. It also vindicates the proposition of stewardship theory that auditors and managers can collaborate to pursue long-term goals. By empirically demonstrating that IAP accounts for over 70% of a one-unit change in SV, we confirm that audit functions do not merely check the books; they actively drive value creation.

Finally, we tested whether IAP serves as the conduit through which corporate governance mechanisms (CGMs) impact SV. The bootstrapped indirect effect of CGM on SV via IAP was substantial (β indirect = 0.257; SE = 0.032; 95% CI [0.190, 0.319]), and the variance accounted for (VAF) was approximately 75%, signifying practically full mediation. In other words, CGM’s influence on shareholder outcomes operates primarily by empowering the internal audit function. This mediation finding bridges the explanatory gap identified by Konak (2023) and Boutrik et al. (2021), who observed inconsistent direct CGM→SV effects but noted stronger corporate governance and internal audit relations.

To enrich the statistical analysis, interview responses were thematically analyzed.

Table 5. Thematic analysis of interview results.

No.	Theme	Illustrative Quote	Support for Hypotheses
1	Tick-box Board Membership	“The cost of running the corporate board outweighs the benefits, especially when large boards include members who merely fulfil governance code requirements.”	This explains H1 (CG → SV not supported). Weak board effectiveness limits direct governance impact.
2	Lack of Relevant Expertise	“Board selection often reflects external influence rather than industry-relevant expertise.”	Weakens H1 (CG → SV) and supports H2 (CG → IAP). Corporate governance adds value only if boards empower internal audit.
3	Minimal Oversight	“Boards seldom engage in continuous oversight, only wait at the end of the year to receive reports.”	Reinforces H1 null result. Corporate governance intent is not operationalized without strong audit follow-through.
4	Burden on Internal Audit	“Internal Auditors must compensate for infrequent board engagement by bridging the gap between governance and operations.”	Supports H2 and H4. IAP mediates governance effects, operationalizing board intent into value.
5	Skills Gap in Audit	“Internal Auditors often lack the technical expertise to move beyond compliance checks.”	Supports H3 (IAP → SV): IAP adds value only when audit teams have the requisite capabilities.

summarizes the key themes, provides illustrative quotes, and shows how these insights support the quantitative findings.

The qualitative evidence from Table 5 above explains why corporate governance alone had no significant direct effect on shareholder value and why internal audit performance served as the mediating mechanism. They also highlight the boundary conditions under which internal audit creates value, particularly the need for technical expertise and adequate board engagement.

5. Discussion of Results

Our findings provide an empirical explanation for the long-standing conflicting evidence on the relationship between corporate governance and shareholder value by demonstrating how internal audit performance operationalizes corporate governance to create shareholder value. Contrary to the predictions of Shareholder Value Theory (Friedman, 1970; Jensen, 2001), which assumes that governance directly maximizes returns, and earlier evidence in contexts such as Ghanaian banks (Puni & Anlesinya, 2020) and Sri Lankan firms (Danoshana & Ravivathani, 2019), we observed no significant direct effect of corporate governance on shareholder value. This null result, consistent with findings in Pakistan and other emerging markets (Fariha et al., 2022; Konak, 2023), suggests that governance structures by themselves are insufficient to create shareholder value, unless they are activated through organizational capabilities. In other words, formal board structures create the intent for monitoring, but intent without execution fails to improve shareholder outcomes.

In line with agency theory (Jensen & Meckling, 1976), however, our second hypothesis was supported: corporate governance mechanisms strongly predicted internal audit performance. This confirms that independent, diverse boards and empowered audit committees are essential for reducing agency costs and providing internal auditors with the resources, independence, and information access required to perform effectively (Boutrik et al., 2021; Mwape, 2022). Again, consistent with stewardship theory (Davis et al., 1997), internal audit also functioned beyond a control mechanism, serving as a partner to management by offering advisory and consultative roles. Our evidence thus positions internal audit as the bridge between the adversarial assumptions of agency and the trust-based collaboration of stewardship.

The positive and significant effect of internal audit performance on shareholder value supports the resource-based view (Pfeffer & Salancik, 1978; Turetken et al., 2020), which recognizes firm-specific capabilities as the foundation of sustained advantage. Internal audit proved to be such a capability, delivering compliance assurance, strengthening risk management, and aligning internal resources for efficiency and profitability. At the same time, the findings resonate with Dynamic Capabilities Theory (Teece et al., 1997; Helfat & Peteraf, 2009), as audit functions were found to not only enforce controls but also adapt to emerging risks and technologies, shifting from retrospective monitoring to proactive enablers of organizational resilience and innovation.

Our mediation analysis resolved the conflicting empirical evidence by demonstrating that corporate governance can only influence shareholder value through internal audit performance. This result empirically validates the internal audit performance as the missing link between corporate governance and shareholder value. The result reinforces Triple Bottom Line (Elkington, 1994) arguments, as effective internal audit functions embed sustainability and ESG assurance into governance, ensuring that shareholder value is pursued alongside broader social and environmental responsibilities (Johri et al., 2024).

6. Conclusions

This study resolves the long-standing inconsistent findings on the governance–value relationship by demonstrating, through both quantitative modelling and qualitative insights, that internal audit performance is the critical mechanism through which governance creates shareholder value. The results showed that corporate governance had no direct effect on shareholder value, but significantly enhanced internal audit performance, which in turn strongly improved shareholder value. The interview findings reinforced this mechanism by revealing weak board expertise, minimal oversight, and “tick-box” governance practices that limited direct impact. The internal auditors bridge the corporate governance–operations gap despite capability constraints. We, therefore, argue that the conflicting evidence in prior studies arises because governance structures alone are insufficient; their effectiveness depends on whether they are activated by strong, well-resourced, and strategically oriented internal audit functions. In firms where audit capacity is weak, governance remains ceremonial; where it is strong, governance is translated into shareholder value.

While previous studies have typically employed a single theory, most commonly agency theory to emphasize monitoring, stewardship theory to underline trust, or RBV to highlight capabilities, our research advances the literature by synthesizing these theories within the internal audit value-adding (IAVA) framework. This conceptual framework explains not only why boards establish governance mechanisms (agency), but also how internal auditors collaborate with management to balance trust and control (stewardship), and the conditions under which internal audit evolves into a firm-specific capability that fosters sustainable performance (RBV). By positioning internal audit as the corporate tool that transforms corporate governance into shareholder value, our study extends beyond structural indicators of governance and redefines governance effectiveness based on functionality. This theoretical integration explains the inconsistent findings regarding corporate governance and shareholder value in prior research and provides a clear pathway for future study. Ghana adopted international corporate governance and internal audit practices. Therefore, the findings of this study provide a roadmap for firms in both emerging and developed economies to diagnose governance gaps, strengthen internal audit capabilities, and deliver sustainable shareholder value.

Policy and Practical Implications

The findings of this study have important implications for boards, executives, regulators, internal auditors, and shareholders.

• Boards and executives should prioritize investment in internal audit by appointing skilled staff, granting them adequate budgets, and ensuring direct access to governance structures.
• Regulators and standard-setters should embed minimum requirements for internal audit capability within corporate governance codes and mandate disclosure of audit resources, scope, and performance.
• Chief internal auditors must position the function as a strategic partner, extending beyond compliance to risk-based reviews and forward-looking advisory services.
• Shareholders should also play an active role by supporting independent audit committees and demanding transparent reporting at annual general meetings.

7. Limitations of the Study

While this study highlights how internal audit performance mediates the effect of corporate governance on shareholder value in Ghanaian listed firms, we wish to acknowledge some limitations. Even though Ghana adopted international corporate governance practice and the findings of this study can benefit other countries, especially the emerging economies, a different national regulatory environment may limit its generalizability. Therefore, the results should be interpreted with caution. Additionally, the cross-sectional nature of the survey data restricts causal inference and temporal dynamics in the relationships among corporate governance, internal audit performance, and shareholder value. It also relies on perception-based measurement, introducing subjective responses. Future research should address these limitations by adopting longitudinal designs, expanding to diverse institutional contexts, and employing objective performance indicators to strengthen causal claims and enhance external validity.