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Audit Committee and Firm Value: Evidence on Outside Top Executives as Expert-Independent Directors

Department of Accounting and Finance, Gordon Ford College of Business, Western Kentucky University, Bowling Green
Corporate Governance An International Review (Impact Factor: 1.9). 02/2008; 16(1):16-31. DOI: 10.1111/j.1467-8683.2008.00662.x
Source: RePEc

ABSTRACT We offer new insights to relate firm value of the composition of audit committee. When expert-independent directors are of majority control of audit committee, finance-trained directors improve firm value almost five times to that of firms with independent audit committee alone. We provide empirical evidence to show that by focusing on this restricted definition of independent directors (expert-independent directors), we are able to examine independence in both the board and audit committee in a different light. Using a sample of Fortune 200 companies and defining top executives of other publicly traded firms as expert-independent directors and controlling for firm specifics, board features, and individual director characteristics, we find the presence of expert-independent directors on board and in the audit committee enhances firm value. We examine the relation between independence of audit committee and firm value with a sample of Fortune 200 companies. We examine the relation between independence of audit committee and firm value with a sample of Fortune 200 companies.Using a sample of Fortune 200 companies and defining top executives of other publicly traded firms as expert-independent directors and controlling for firm specifics, board features, and individual director characteristics, we find the presence of expert-independent directors on board and in the audit committee enhances firm value. We provide empirical evidence to show that by focusing on this restricted definition of independent directors (expert-independent directors), we are able to examine independence in both the board and audit committee in a different light. We offer new insights to relate firm value of the composition of audit committee. When expert-independent directors are of majority control of audit committee, finance-trained directors improve firm value almost five times to that of firms with independent audit committee alone.

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Jun 10, 2014