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


Manuscript Type: Empirical
Research Question/Issue: We examine the relation between independence of audit committee and firm value with a sample of Fortune 200 companies.
Research Findings/Insights: 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.
Theoretical/Academic Implications: 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.
Practitioner/Policy Implications: 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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Available from: Kam C. Chan, May 19, 2014
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    • "Audit committee can act as a bridge in such gaps especially in terms of the integrity of the financial statements of an organisation. An effective audit committee will therefore help in aligning the interests of management with that of shareholders(Chan & Li, 2008). Thus academic literature suggests that a qualitative audit committee has significant positive impact in minimizing agency conflicts and protecting shareholders' interest(Al-matari & Al-matari, 2012). "

    Full-text · Article · Jan 2015
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    • "The independence of the committee is taken to be assured by the presence of independent auditors. Furthermore the audit committee will also submit their work to external auditors, and the latter's remit will include providing assessments of the effectiveness of management's financial management and the committee's work (Chan & Li, 2008, Chen, Firth, Gao, & Rui, 2006). Good independent external auditors charge high fees, especially if they are required to undertake a considerable amount of work. "
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    ABSTRACT: How do international investors react to announcements of cross-border mergers and acquisitions (CM&As) by emerging market multinational enterprises (EMNEs)? Using a unique and manually-constructed firm-level dataset, this paper examines the stock price reactions to CM&A announcements made over the period 1991–2010 by Chinese MNEs listed on the Hong Kong Stock Exchange and the wealth impacts of their corporate governance. Our empirical findings confirm a positive stock price reaction on average, and suggest that international investors react positively to the presence of large shareholders, but negatively to the presence of institutional shareholders. There is a negative impact if the largest shareholder is either the State or the corporate founder. We suggest that this is because the international investors perceive potential principal–principal conflicts in such ownership/control constellations and discount equity prices accordingly. We also find that Board size and independence have positive effects on the price reaction, but that large supervisory boards engender negative reactions.
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    • "But found no relationship between independent audit committee and performance. Chan and Li (2008) found that firm value in enhanced by presence of expert-independent directors in audit committee. Lybaert (1998) stated that better performance of firms is due to higher and better level of education among entrepreneurs. "
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    ABSTRACT: Corporate governance issues have been a growing area of management research especially among large and listed firms. Good corporate governance practices are regarded as important in reducing risk for investors, attracting investment capital and improving the performance of companies. Companies need financial resources and better earnings to promote their objectives. Therefore, factorsmay affect the capital structure and profitability of companies should be considered carefully. The purpose of the present study is to investigate whether there is any relationship among some specific characters of corporate governance, capital structure and profitability of listedHotels &Restaurant companies in Colombo Stock Exchange (CSE). To do so, 18 companies were selected from those which were listed inCSE during the 2007-2012. The ‘Board Composition(BC)’, ‘Board Size (BS)’ and ‘CEOduality (CEOD)’ were considered as independent variables, whereas,’ Debt Ratio(DR)’,‘Debt-to-Equity Ratio(DER)’,‘Returns on Equity(ROE)’,and ‘Return on Assets(ROA)’ as dependent variable. The results indicate a positive relationship between ‘BS; BC; CEOD; ROE; ROA and DERwhereas negative relationship between BS; BID and addition CEOD have a positive relationship with DR.In addition, none of the variables have a significant relationship with capital structure and profitability.
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