Who Can Stand Up for Good Governance? Evidence from Board Committees

Abstract

This paper contributes to research on board committees by analyzing the impact of a symbolic or substantial role of committees on their decision making quality using the example of audit committees. Based on an international sample comprising 2,410 firm-year observations from 16 European countries between 2005 and 2010, we analyze the effect of audit committee standing on earnings management as an indicator for audit committee decision making quality. Furthermore, we investigate the interdependency of corporate governance practices and national institutions, specifically country-level disclosure and shareholder protection. We find that audit committee standing affects decision making quality. Moreover, we find evidence for both disclosure and shareholder protection to affect this relationship suggesting the importance of national institutions in influencing of governance practices.