Drawing on agency theory, this paper investigates the determinants of voluntary audit
committee (AC) formation among non-bank firms listed on the Palestine Stock Exchange
(PSE). We used the annual reports of nearly all non-bank companies listed on the PSE as
well as the company guides issued by the PSE for the period between 2010 and 2012.
Logistic regression analysis was performed to identify the influence of a set of corporate
governance mechanisms, ownership structures and company characteristics on the
voluntary formation of ACs among non-bank Palestinian firms. The result of the analysis
demonstrated that the AC is influenced by foreign ownership, institutional ownership,
board diligence and external auditor type. This paper adds to the limited AC literature in
Middle Eastern countries in general and in the Arab World in particular. This paper not
only examines the determinants of the voluntary formation of ACs but also attempts to
theorise about this formation
