The Emergence of Independent Directors in Audit Committees: Strengthening Corporate Governance

Abstract

In contemporary corporate governance, the role of independent directors within audit committees is gaining prominence. This transformation is driven by the imperative to uphold transparency, accountability, and shareholder interests. This paper explores the factors underpinning this shift, the benefits it yields for corporations and stakeholders, and the overarching implications for corporate governance. The Sarbanes-Oxley Act (SOX) has amplified the responsibilities of boards of directors and audit committees, leading to a growing demand for professional directors who can dedicate themselves solely to board duties. The study delves into the relationship between professional directors within audit committees and their ability to enhance monitoring capabilities, utilizing unexplained bad debt expenses as an indicator of accounts receivable quality. Results reveal that companies with a higher proportion of professional directors, particularly those with accounting backgrounds, exhibit lower levels of unexplained bad debt expenses, signifying improved accounts receivable quality. Independent directors' inclusion in key roles such as the audit committee is aimed at mitigating conflicts of interest and safeguarding the integrity of financial reporting processes. Institutional investors, with significant stakes in numerous companies, are increasingly advocating for the appointment of independent directors to lead audit committees. These directors, often with backgrounds as university professors, bring critical thinking, objectivity, and expertise in evaluating proposals and assessing risks to the table, fostering transparency and ethical practices.

Full text








          

         
            



           
          




         


      
  
          







  
              
            


           






  
         

            
  



            

 
           
              



           




         
          

 
 

 

         

 

         

           

          


           
         
            


     

  
            


         
   
   



            

         

           


            


          

         

           
           
             





 




           
          

         


           
      



          

          

      
          


          



          








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Review of Behavioral Finance, https://doi.org/10.1108/RBF-07-2019-0092
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