THE IMPACT OF INTERNAL AUDIT QUALITY AND INTELLECTUAL CAPITAL ON FINANCIAL REPORTING QUALITY IN LIBYAN BANKING INDUSTRY: THE MEDIATION ROLE OF BANKS' PERFORMANCE

Abstract

This study investigates the determinants of financial reporting quality (FRQ) in the Libyan banking sector, focusing on the roles of internal audit quality (IAQ) and intellectual capital (IC). Utilizing a robust analytical framework, including mediation analysis, the research examines the direct and indirect effects of these variables on FRQ through bank performance (BP). The findings reveal that while IAQ does not have a statistically significant direct impact on FRQ, its effect becomes substantial when mediated by BP. This underscores the importance of viewing IAQ within the broader context of overall bank performance. FE and IC demonstrate significant direct impacts on both BP and FRQ, highlighting their critical roles in the banking sector. The study provides valuable theoretical insights by integrating IAQ, FE, and IC into a single model, revealing their interdependencies and collective influence on FRQ. Practically, the findings offer strategic guidance for bank managers and policymakers, emphasizing the need for comprehensive strategies that enhance internal audit functions, and intellectual capital to improve financial reporting quality. These insights contribute to a deeper understanding of the factors driving FRQ in the banking industry and offer a foundation for future research and policy development.