The Impact of Audit Committee Characteristics on the Risk-taking Behavior of Firms in Pakistan

Abstract

Several steps to bring corporate governance (CG) in place and operation, but the efficient working of the audit committee is an effective component for success. This study aims to examine the impact of the audit committee characteristics and, gender-diverse audit committee on corporate risk. This study analyses the risk behavior of non-financial firms listed on the Pakistan Stock Exchange from the financial year 2010 to 2018. The findings of the study indicate that the audit committee characteristics have a negative and significant relation with idiosyncratic risk. Furthermore, gender diverse audit committee has a significant negative relationship with the capital expenditure. Our results show that the effect of audit committee characteristics such as audit committee independence, audit committee size, and, gender diversity is insignificantly associated with total risk. While audit committee independence, audit committee size, and gender diverse audit committee do support reducing corporate risk, and, they play a vital role in managing idiosyncratic risk. The findings of the analysis could help executives and boards in making appropriate choices regarding the audit committee's independence, size, and corporate governance structure and policies to improve the efficiency of the organization and mitigate risk.