Author: James M. Braswell
Publisher:
ISBN:
Category : Audit committees
Languages : en
Pages :
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Book Description
Regulators and financial reporting institutions have recently increased their focus on audit committee composition, indicating an acknowledgement of the potential importance of audit committee monitoring efforts on financial reporting quality. I extend prior corporate governance research by exploring whether the duration of service on a specific audit committee (i.e., audit committee tenure) affects earnings quality, future financial performance and cost of capital. Using a sample of 2,355 firm years for fiscal years 1998-2003, I test the potential association between audit committee tenure and GAAP-based earnings quality proxies and find some evidence that audit committee tenure improves earnings quality by limiting the degree to which management relies on accruals to determine income. I also test whether audit committee tenure effectively reduces real earnings management proxies since such techniques reflect routine business decisions that often fall outside of GAAP's jurisdiction. I find that audit committee tenure is associated with the use of abnormally low discretionary expenses, suggesting that current-period earnings are artificially inflated when audit committee tenure is relatively longer. The next stage of my study examines the effect of audit committee tenure on firm performance. Audit committees can influence firm performance by two avenues. First, committee effectiveness can influence the quality of reported earnings, which could reduce the cost of capital and improve firm performance by making positive NPV projects more feasible. The audit committee also oversees risk management activities and internal reporting efforts that are ultimately used by the board of directors to monitor and ratify management's strategic decisions. The results of this analysis provide evidence consistent with the entrenchment hypotheses since audit committee tenure appears to have a negative effect on future firm performance. I conclude the study by analyzing the potential association between audit committee tenure and cost of capital. After employing both cost of equity and cost of debt proxies as dependent variables, I find no significant associations with audit committee tenure.
Author: Andrew J. Felo
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
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Book Description
In this paper, we empirically examine the relationship between two audit committee characteristics - the composition (expertise and independence) and size of the audit committee - and the quality of financial reporting. We show that after controlling for firm size, board composition, a measure of management's commitment to transparency (the existence of an ethics program) and institutional ownership, the percentage of audit committee members having expertise in accounting or financial management is positively related to financial reporting quality. We also find some evidence of a positive relationship between the size of the audit committee and financial reporting quality. However, audit committee independence is not related to financial reporting quality. We also verify that our results are robust across different measures of financial reporting quality. Our results suggest that mandating greater expertise on audit committees rather than simply requiring one expert on the audit committee may be beneficial to investors. In addition, our results also provide weak support for the recommendation of the Blue Ribbon Committee that firms devote significant directorial resources to the audit committee. Given the prior evidence of a negative relationship between financial reporting quality and cost of capital, firms could improve their reporting quality by appropriately structuring their audit committees, thus reducing their cost of capital.
Author: Frank M. Burke
Publisher: CCH
ISBN: 9780808091646
Category : Business & Economics
Languages : en
Pages : 468
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Book Description
Author: Bo Qin
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Book Description
An audit committee with financial expertise is expected to strengthen the firms' internal control system, and consequently, contribute to reliable and relevant financial reporting. The controversial definition of financial expert was intensively commented on before the Securities and Exchange Commission (SEC) stipulated the final rules. In this study, the author examines whether the impact of audit committee's financial expertise on earnings quality as measured by returns-earnings relation varies with the way the financial expert is defined. The results indicate that the firms with an accounting-literate professional serving on the audit committee are more likely to have high quality of reported earnings than others without such an expert. In addition, the size of the audit committee with accounting-related expertise has a positive impact on earnings quality. In contrast, the presence of a financial expert under SEC final definition is not significantly related to earnings quality. The results are robust with other influential factors, such as earnings growth, persistence, firm size, and industry specificity, taken into account.
Author: Jennifer Francis
Publisher: Now Publishers Inc
ISBN: 1601981147
Category : Business & Economics
Languages : en
Pages : 97
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Book Description
This review lays out a research perspective on earnings quality. We provide an overview of alternative definitions and measures of earnings quality and a discussion of research design choices encountered in earnings quality research. Throughout, we focus on a capital markets setting, as opposed, for example, to a contracting or stewardship setting. Our reason for this choice stems from the view that the capital market uses of accounting information are fundamental, in the sense of providing a basis for other uses, such as stewardship. Because resource allocations are ex ante decisions while contracting/stewardship assessments are ex post evaluations of outcomes, evidence on whether, how and to what degree earnings quality influences capital market resource allocation decisions is fundamental to understanding why and how accounting matters to investors and others, including those charged with stewardship responsibilities. Demonstrating a link between earnings quality and, for example, the costs of equity and debt capital implies a basic economic role in capital allocation decisions for accounting information; this role has only recently been documented in the accounting literature. We focus on how the precision of financial information in capturing one or more underlying valuation-relevant constructs affects the assessment and use of that information by capital market participants. We emphasize that the choice of constructs to be measured is typically contextual. Our main focus is on the precision of earnings, which we view as a summary indicator of the overall quality of financial reporting. Our intent in discussing research that evaluates the capital market effects of earnings quality is both to stimulate further research in this area and to encourage research on related topics, including, for example, the role of earnings quality in contracting and stewardship.
Author: Agyemang, Otuo Serebour
Publisher: IGI Global
ISBN: 1522596097
Category : Business & Economics
Languages : en
Pages : 330
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Book Description
Virtually all developing, transitioning, and emerging-market economies are faced with one pressing concern at the moment: how to establish the groundwork for long-term economic performance and competitiveness in a diverse market. However, without the existence of good corporate governance in these economies, small enterprise will cease to exist in developing countries. Corporate Governance Models and Applications in Developing Economies is a collection of innovative research that contributes to the better understanding of corporate governance models by documenting the structures, principles, tenets, case studies, and applications for the development of good business practices in developing economies. While highlighting topics including risk management, financial distress, and insider trading, this book is ideally designed for corporate managers, executives, economists, strategists, investors, shareholders, students, researchers, academicians, business professionals, and policymakers.
Author: Chaudhry Ghafran
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Book Description
This thesis examines the impact of audit committee characteristics on financial reporting quality in the context of a large sample of UK companies over the period 2007-2010. The notion of financial reporting quality is assessed by looking at the audit quality and earnings quality of the firms. This study utilises the audit fee and non-audit fee ratio as its proxies for audit quality and accruals based earnings management models as its proxies for earnings quality. The findings from the multivariate analysis show that audit committee meetings and financial expertise exert a significant positive impact on audit fees. Investigating expertise further, this study finds no support for the notion that accounting expertise influences audit fees, however a significant positive influence on audit fees is recorded for the non-accounting financial expertise. However, the holding of additional directorships has a significant negative impact on audit fees. This study also finds that audit committee members' financial expertise has a negative and significant impact on non-audit fee ratio suggesting a strong support of members with financial expertise on issues relating to auditor independence. The study also documents that audit committee members serving longer on the boards do not prefer to purchase high amount of non-audit services from the incumbent auditor. This study also records a significant positive impact of the holding of additional directorships on the provision of non-audit fee ratio, thus signifying a profound support for the busyness hypothesis which argues that overstretched directors are not very good monitors of financial reporting quality. Furthermore, this study finds broadly consistent evidence that audit committees meeting three or more times per year and fully independent audit committees exert a significant positive impact on the quality of reported earnings. This study also finds some evidence (depending on the earnings model used) that the level of ownership of audit committee members also exerts a positive impact on the quality of reported earnings, highlighting the fact that audit committee members with an equity stake in their companies are considered more effective in their oversight of the financial reporting process. On the other hand, this study finds evidence that the busyness of audit committee members (busyness defined in terms of the holding of board seats in other companies) has a significant negative impact on the quality of reported earnings. The composite variables (i.e. ACE1, ACE2, ACE3 and ACE4) representing those companies that satisfy all aspects of current best practice in terms of audit committee composition and operation, has a positive impact on the quality of reported earnings. This study covers the period 2007 to 2010 and therefore offers a contemporary analysis of the influence of audit committee characteristics on financial reporting quality. The study is very comprehensive in its scope not only in the selection of audit committee characteristics and methods employed to quantify these characteristics, but also in the use of various proxies developed to capture the true essence of financial reporting quality. The choice of multiple measurement methods both for the dependent and independent variables facilitates a much richer investigation into the relationship between governance and financial reporting quality variables. Therefore this study makes a major contribution to our understanding of the association between the various audit committee characteristics and financial reporting quality in the wake of recently introduced regulatory recommendations. These findings will also have policy implications as regulators around the world continue to define and refine the desired characteristics and behaviour of audit committees. Therefore, the findings of this study will ensure future policy changes regarding audit committees are adequately informed.
Author:
Publisher:
ISBN:
Category :
Languages : en
Pages : 68
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Book Description
Author: David Larcker
Publisher: FT Press
ISBN: 0136659985
Category : Business & Economics
Languages : en
Pages : 561
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Book Description
The Definitive Guide to High-Performance Corporate Governance Fully updated for the latest research, trends, and regulations, Corporate Governance Matters, Third Edition, offers comprehensive and objective information for everyone seeking to improve corporate governance—from directors to institutional investors to policymakers and researchers. To help you design highly effective governance, David Larcker and Brian Tayan thoroughly examine current options, reviewing what is and isn't known about their impact on organizational performance. Throughout, they take a strictly empirical and non-ideological approach that reflects rigorous statistical and research analysis and real-life examples. They address issues ranging from board structure, processes, operations, and functional responsibilities to institutional investors, outside stakeholders, and alternative forms of governance. New discussions of: Environmental, Social, and Governance (ESG) activity and ratings Stakeholder interests CEO activism CEO misbehavior Cybersecurity risks Extensively revised coverage of: Executive compensation Leadership and succession planning Director recruitment, evaluation, turnover, and more The authors' balanced approach provides useful tools for making better, more informed decisions on governance.
Author: Catherine L. Bromilow
Publisher: Iia Research Foundation
ISBN:
Category : Business & Economics
Languages : en
Pages : 180
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Book Description
