Antecedents of and Outcomes after Finance Committee Use

Abstract

We study why firms voluntarily create and use finance committees and whether firms realize benefits. Firms are more likely to have a finance committee when they have defined benefit pension plans, debt equity issuance, and active dividend payout. Capital expenditures, restructuring, material weaknesses in internal controls, and restatements are drivers of creating a finance committee. While we find a weak association between finance committee use and financial performance on average, we find that finance committees that are highly independent have better-performing investments. Finance committees contribute to lowering the cost of debt for firms with small audit committees.