Market Reactions to Departures of Audit Committee Directors

Abstract

SYNOPSIS:The composition and functioning of audit committees have come under increasing scrutiny from legislators and regulators in recent years. We examine the market reaction to 107 audit committee director departures that occur (without any concurrent appointment to the board or other contemporaneous news) during 2005 to 2008. We find that there is a significant negative market reaction to the departure of accounting experts, but not for the departures of other types of experts or non-expert directors. Considering a subsample of expert director departures, we find that the market reaction is significantly negative for the departure of short-tenured directors, but not for the departure of long-tenured directors.