Abstract
Audit committee (AC) financial experts is considered one of the important corporate governance mechanisms due to their vital role in overseeing companies’ financial reporting procedures and enhancing corporate financial decisions. Regulators and policymakers require Omani firms to have at least one director with financial expertise sitting on ACs. Therefore, we aim to investigate the effect of AC financial expertise on corporate financial decisions (capital structure, dividend payment and cash holdings). We use a data set of all Omani financial institutions (36 firms) listed on the Muscat Stock Exchange (MSX) over the period from 2014 to 2019, consisting of 216 firm-year observations. The paper contributes to the growing body of the literature by being the first study to examine the impact of AC financial expertise on financial decisions. The study also contributes to the literature by integrating multiple theories: agency, resource dependence and signalling, to enlighten the effect of the unique power of financial expertise on making financial decisions. We find that AC members with financial expertise are positively related to the level of cash holdings, leverage and dividend payment in financial companies. The findings provide empirical evidence to regulators to encourage companies to exceedingly appoint financial experts as AC members due to their unique resources, which improve their monitoring role and constraining management opportunistic behaviour
Highlights
Efficient corporate financial decisions are the main responsibility of the boards of directors (BODs) (Trinh, Elnahass, Salama, & Izzeldin, 2020)
This paper examines the impact of audit committee (AC) directors with financial expertise on corporate financial decisions within Omani financial firms
Oman provides an ideal context to investigate such relationships as the corporate governance (CG) Code has given a significant focus on the characteristics of AC directors and has called for a diversity of experience within AC members to enhance their role in monitoring the management behaviours
Summary
Efficient corporate financial decisions are the main responsibility of the boards of directors (BODs) (Trinh, Elnahass, Salama, & Izzeldin, 2020). AC members play two important roles: monitoring and advisory roles, a dearth of studies has been found on the advisory role of the AC directors (Qiao, Chen, & Hung, 2018). With their unique expertise, these directors would be able to offer ultimate advice on “expertise-related policies” and develop a more strong and solid “internal control system and risk management framework” (Sultana, 2015). This paper contributes to the literature of AC financial expertise and concentrates on three financial decisions: dividend pay-out, cash holdings, and capital structure
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