Determinants of audit committees' activity: evidence from the UK

Abstract

PurposeThe purpose of this paper is to revisit the determinants of audit committee activity in UK listed companies after over a decade since the last investigation of this matter and with numerous significant changes in the regulatory and corporate governance framework globally.Design/methodology/approachUnderpinned by agency theory, the study undertakes a multiple regression analysis of listed companies in the UK in order to determine the determinants of the activity of the audit committees in these companies.FindingsThe study finds that audit committee activity is an increasing function of boards' independence and diligence. Interestingly, it also finds a significant negative relationship between audit committee activity and ownership structure. A higher number of large shareholders with at least 3 percent of the firm's issued equity share capital are associated with a decrease in a committee's activity. Audit committee expertise, size and the availability of an audit committee charter were not significant determinants of audit committee activity.Research limitations/implicationsThe findings from the study suggest the need for more research into the factors that can explain the determinants of the activity of the audit committees in the UK and elsewhere. It also opens up the discussion on the effects of changing global corporate behaviors on corporate governance mechanisms.Practical implicationsThis study shows that there is a positive relationship between board independence and the activity of the audit committees. In other words, to improve the performance of the audit committees in UK listed companies, board independence should be increased. There also seems to be substitution between governance mechanisms. The presence of large shareholders slowed the activity of the audit committees, as evidenced in a significant negative relationship.Originality/valueThe study revisits the determinants of the audit committees after over a decade since the initial investigation in the UK. However, the study is undertaken in a very different context with far‐reaching changes in the corporate landscape and regulations.