Independent Audit Committee Members Research Articles

Peranan Tata Kelola Dalam Penentuan Kas Ditangan

This study aims to obtain empirical evidence of the role of governance, namely the structure of the board and audit committee in determining cash holding. The data in the study were taken by purposive random sampling. Data obtained from manufacturing companies listed on the IDX for the 2017-2021 observation period. The data is then processed with E-views. Board size and board meetings have no significant influence. Independent board composition has a significant positive influence. Audit committee members has a significant negative influence. As a control variable, firm size and capital expenditure had no significant effect on cash on holding. Meanwhile, DAR as a control variable has a significant negative influence. Board size, independent board composition, board meetings, and audit committee members, as well as the control variables of firm size, DAR, and capital expenditure have a significant influence on the decision to determine the amount of cash holding.

Do Publicly Listed Insurance Firms in Saudi Arabia Have Strong Corporate Governance?

Saudi Arabia has now opened its markets to foreign investors in line with its strategy to diversify its economy. However, investors need to feel confident that Saudi enterprises are being monitored and regulated appropriately. This study identifies the impact of improvements in Saudi corporate governance practices among insurance firms. The effects of corporate governance on the financial performance of 35 insurance firms listed on the Saudi stock market are examined from 2008 to 2014, including Shariah-compliant and life insurance firms. Four different methodologies are used: the generalised least squares random effect, fixed effect models, a difference-in-differences (DID) measurement for comparisons, and the probit model with average marginal effect to address endogeneity. The results indicate that firm performance is affected by information asymmetry. The 2009 exogenous shock from the Saudi regulatory change to board composition and audit committee size shows a positive effect on performance in the DID comparison. However, an increase in independent board and audit committee members has a significant negative effect. Other findings indicate that an increase in CEO (Chief Executive Officer) age has a positive effect on performance, as do three pay variables (director incentives, CEO and top executive pay, and above-the-mean director incentives). However, when CEO and top executive pay increases above the mean, the effect turns negative; this also happens with a change in CEO from poor performance. The results support the importance of Saudi insurance industry corporate governance regulation and reflect the improved governance perspectives of the Saudi Capital Market Authority and Saudi Arabian Monetary Agency.

Do Level of Audit Committee Independence and Types of Financial Expertise Affect Corporate Voluntary Disclosure: Evidence for an Emerging Economy

The aim of this study is report on the level of audit committee (AC) independence and different types of financial expertise and to empirically examine the effect of AC independence level and different types of AC financial expertise on corporate voluntary disclosure of Malaysian listed firms. Using multiple regression analysis on data drawn from annual reports of top 146 listed firms, the findings reveal that proportion of independent directors on audit committee, and totally independent audit committee members can lead to significantly a higher level of voluntary disclosure. Further, members with accounting expertise of AC are significantly associated with corporate voluntary disclosure. The findings of this study may be of interest to policy makers, regulators, shareholders and management as they could use them to understand and assess AC effectiveness and hence enhance the monitoring role of AC.

Pengaruh Manajemen Laba dan Tata Kelola Perusahaan Terhadap Audit Delay

This study aims to analyze and provide empirical evidence whether the mechanism of corporate governance practices and earnings management has an effect on audit delay. The calculation used in earnings management is discretionary accruals, while the indicators in the governance mechanism are institutional ownership, independent commissioners and audit committees. This study uses the object of research in companies engaged in the tourism, hotel and restaurant sectors listed on the Indonesia Stock Exchange in 2017-2020. Research related to the effect of earnings management and corporate governance on audit delays in tourism, hotel and restaurant sector companies is difficult to find so this research was chosen to be carried out, given the importance of timely information (timeliness) and the transition in the tourism sector due to the COVID-19 pandemic. This research is a qualitative research using purposive sampling technique for sample selection. The data that can be processed are 94 samples. Hypothesis testing using multiple linear regression. The results of the study found that earnings management with discretionary accrual methods and institutional ownership had no effect on audit delay. Meanwhile, the independent board of commissioners and the audit committee have a positive effect on audit delay. The conclusion in this study is that the percentage of institutional ownership does not cause delays in submitting the independent auditor's report. Meanwhile, the higher the total number of independent commissioners and audit committee members, it can slow down the audit, causing audit delay.

Does board committee independence affect financial distress likelihood? A comparison of China with the UK

This study explores the relationship between board committees’ independence and the financial distress of firms in China and the UK. Akin to previous literature, we estimate this relationship between 2007 and 2016 using a conditional logit model on a sample of matched pair firms. For China, the results indicate a positive and statistically significant association between the percentage of independent audit committee members and the financial distress of firms. In contrast, the opposite relationship was found for independent compensation and nomination committee members. For the UK, the relationships are the same, but the results are significant only for nomination committee independence. Our overall results suggest that independent audit committee members are not favorable for firm survival. In contrast, the independent compensation and nomination committee members are beneficial for the financial health of firms, as they are responsible for designing fair compensation packages and for selecting the most suitable persons to decide the strategic moves of the firm, respectively. A robustness test demonstrates that the results are robust to the assumed functional form imposed by the conditional logit model and confirms our core findings for both Chinese and UK firms.

A Comparative Study on Approaches to the Independence of Outside Directors and Audit Committee in Korea and the U.S.

There have been debates on adoption of corporate laws regarding electing independent audit committee members separately and double derivative suit, as well as mandatory cumulative voting to improve corporate governance in Korea. This article examines whether mandatory or market based approaches are desirable to improve corporate governance in Korea. It will explore the ways to strengthen the independence of the board of directors and audit committees. Firstly, this article studies the independence of outside directors in the U.S. and Korea. The independence of the board of directors has been weak in Korea due to controlling shareholders and circular share-holding ownership structure among big business groups, even though there have been attempts to improve this situation. Secondly, this article examines the current role of outside directors, audit committees, and cumulative voting in the U.S and in Korea to find out positive changes in corporate governance Korea. Lastly, his article will discuss the appropriate direction between mandatory and market based soft law approaches on corporate governance in Korea. It will argue that Korea needs to strengthen the monitoring function of the board of directors, independence of outside directors and audit committee.

The Relationship between Audit Committee Effectiveness and Audit Fees: Insights from Indonesia

This study examines the relationship between the effectiveness of an audit committee and the amount of audit fees. The sample consists of 130 manufacturing companies listed on the Indonesia Stock Exchange (IDX) in 2016-2017. Data are obtained from the IDX and company's annual reports. The effectiveness of an audit committee is measured by independent audit committee size, frequency of audit committee meetings, and expertise of the audit committee. Results show first that the size of the independent audit committee has a positive effect on audit fees. This finding suggests that an increase in the number of independent audit committee members produces a higher quality of reporting, and so they tend to choose a reputable public accountant. Second, the frequency of its meetings has positive effects on audit fees. It suggests that the more effective the supervision of the committee to improve audit quality, the higher the audit fees to be paid. However, this study fails to provide evidence that the expertise of the audit committee affects audit fees. The result of this study suggests that the audit committee tends to adopt the demand approach based on the reputation of the public accounting firm accountant firm in determining the amount of audit fees.

Audit committee and factors that affect its characteristics: the case of Greece

Policy-makers currently place great emphasis on strengthening the audit committees’ structure. Underlying this is a belief that strengthening the audit committees’ structure may enhance the effectiveness as well as the quality of financial information. In this research, we examine the relationship between audit committee characteristics (number of AC members, percentage of independent audit committee members and percentage of board directors) and structure, accounting and corporate governance-related measures. Using a sample of 126 listed companies on the Athens Stock Exchange, we show that audit committee size has a positive relationship with the number of the firm’s employees and negative relationship with operating cash flows and the presence of an executive chairman. Moreover, we find that audit committee effectiveness has a positive relationship with the percentage of independent directors. On that basis, our findings are important since they highlight the usefulness of audit committees and offers insights to academics, practitioners and policy-makers.

Busy boards and corporate earnings management: an international analysis

PurposeBecause of our limited understanding of the incidence and effect of board busyness globally, the mixed evidence of the effect of board busyness obtained in the USA and the divergence of international patterns of director busyness from that observed in the USA, the author contends that there is a strong need to examine board busyness from a global perspective. The literature, however, does not examine the effect of board busyness on reported earnings quality and certainly does not analyze it internationally. Consequently, the purpose of this study is to examine the effect of multiple board appointments on the quality of a firm’s reported earnings.Design/methodology/approachThe research design for this study is empirical. It uses both univariate and multivariate statistical analysis to examine historical corporate accounting, finance and governance data.FindingsConsistent with the busyness hypothesis of corporate governance, the author finds that firms with a higher proportion of busy independent directors or busy CEOs manage their earnings more extensively. Further, the findings of this study present that firms with a higher proportion of busy independent audit committee members have poorer financial reporting quality. Using a sample of American Depository Receipts (ADRs), this study determines that the ineffectiveness of busy boards regarding earnings management is mitigated by the listing regulations imposed by US exchanges.Research limitations/implicationsThe author believes that this study offers new and important evidence regarding the debate whether busy directors provide knowledge, skill and corporate connections, or whether they are overextended and, thus, unable to fully perform their monitoring duties. This study shows that firms with busy directors are associated with poorer financial reporting quality and, consistent with the busyness hypothesis, are less effective as managerial monitors.Practical implicationsThis study provides useful guidance regarding board design and the kinds of policies that firms should adopt regarding multiple boarding.Social implicationsThe social implications focus on the public policy implications regarding the importance of effective corporate governance in the reporting of financial wealth, wealth creation and wealth management.Originality/valueThis is the first study that examines the relation between board/committee busyness and corporate earnings management using a comprehensive set of international firms. Second, the author expands the analysis of audit committee into a new dimension: committee quality as captured by the busyness of its independent members. This study also contributes to the ongoing debate in the corporate finance literature regarding the reputation and busyness hypotheses of multiple directorships.

Board Independence and Financial Performance of Deposit Money Banks in Nigeria and Canada

Introduction: In current eras, supervisory bodies have interceded in the operations of Deposit Money Banks. This is because they are confronted with plethora of problems such as overexpansion; corruption of bank officers, inappropriate risk management and these resulted to poor financial performance.
 Aims: The present study aims to focus on the link amid board independence and financial performance of Deposit Money Banks as well as providing a comparative view by focusing on Nigeria and Canada.
 Methods: This study seeks to observe the association amid board independence and corporate financial performance of Deposit Money Banks in Nigeria and Canada. The panel data methodology is widely recommended for it is useful when data is a blend of time-series and cross-sectional features. The study applied secondary data extracted from annual financial statements of Deposit Money Banks quoted on the Nigerian Stock Market and in the Canadian stock market between the ten years period of 2008 and 2017.
 Results: The variables considered in this study are return on asset (ROA) (dependent variable), proportion of independent non-executive directors on board (BIND) and audit committee independence (ACI) (independent variables), earnings per share (EPS) and firm size (FSIZE) which are control variables. From the findings, it is revealed that there exists a significant relationship between board independence and profitability of deposit money banks in Nigeria and Canada.
 Conclusion: Empirical results obtained reveal that audit committee independence promoted financial performance of the deposit money banks in Nigeria while in Canada it was positive and insignificant. Thus, a greater proportion of audit committee independence would bring about a greater level of financial performance in deposit money banks in Nigeria and Canada. The aspect of corporate governance implies that banks will profit by increasing the number of its independent directors and independent audit committee members.

AN EXAMINATION OF VOLUNTARY DISCLOSURE, INDEPENDENT BOARD, INDEPENDENT AUDIT COMMITTEE AND INSTITUTIONAL OWNERSHIP: FIRM SIZE AS A MODERATOR

: This study examines the impact of the independent board, independent audit committee and institutional ownership on voluntary disclosure (by placing company size as a moderating variable) in Indonesia banking companies. Data collected from the annual report of banking companies listed on the Indonesia Stock Exchange throughout the year of study. Hypotheses developed to be tested with a variance based approach and the results were interpreted. The result has shown that the increase of independent board members and independent audit committee members tend to decrease the level of voluntary disclosure (although the impact is not significant). Independent board and independent audit committee performed this to reduce cost due to a high disclosure and to avoid the threat of high competition in banking companies. The other result has shown that institutional investors are considered more professional and powerful in supervising management to disclose more information to the public. The final section of the study's findings indicated that firm size cannot be as a moderating variable on the impact of the independent board, independent audit committee and institutional ownership toward voluntary disclosure.

The nexus between effective corporate monitoring and CEO compensation

Managerial compensation to top executives, particularly to CEO, has remained a topic of continuing interest in corporate finance literature. Corporations are required to pay a handsome amount to attract and motivate competent business executives to get their jobs done in a befitting manner. Accordingly, executives try to grab higher level of compensation for themselves which might be at the cost of harming firm value and shareholders' interests. In this context, various governing mechanism have been introduced to effectively monitor this opportunistic behaviour of executives. In this context, the current study empirically evaluates the impact of different corporate governance monitoring mechanisms such as institutional shareholders ownership and activism, independence of boards and audit committees, and presence of blockholders in company on level of compensation paid to CEO. The results revealed that more independent board and audit committee members meeting more frequently are helpful in mitigating the higher level of CEO compensation. Moreover, higher financial institutional ownership found positively related to CEO compensation which is in accordance with strategic alliance hypothesis between managers and sponsoring financial institutions.

The nexus between effective corporate monitoring and CEO compensation

Managerial compensation to top executives, particularly to CEO, has remained a topic of continuing interest in corporate finance literature. Corporations are required to pay a handsome amount to attract and motivate competent business executives to get their jobs done in a befitting manner. Accordingly, executives try to grab higher level of compensation for themselves which might be at the cost of harming firm value and shareholders' interests. In this context, various governing mechanism have been introduced to effectively monitor this opportunistic behaviour of executives. In this context, the current study empirically evaluates the impact of different corporate governance monitoring mechanisms such as institutional shareholders ownership and activism, independence of boards and audit committees, and presence of blockholders in company on level of compensation paid to CEO. The results revealed that more independent board and audit committee members meeting more frequently are helpful in mitigating the higher level of CEO compensation. Moreover, higher financial institutional ownership found positively related to CEO compensation which is in accordance with strategic alliance hypothesis between managers and sponsoring financial institutions.

Examining the Independent Audit Committee, Managerial Ownership, Independent Board Member and Audit Quality in Listed Banks

This research examines the effects of the independent audit committee on the relationship between managerial ownership and independent board member on audit quality in the Indonesian listed banks. Primarily, the study examines the direct relationship of managerial ownership, independent board member and independent audit committee on the audit quality of listed banks in the Indonesian Stock Exchange. Also, the current study explores the mediating effect, indirect effect, of the independent audit committee on the relationship between managerial ownership, independent board member, and audit quality in the listed banks in Indonesia. The results show that the independent board member has a significant impact on the independent audit committee and the audit quality. The study reveals that managerial ownership does not influence audit quality. The adoption of the independent audit committee with a long tenure of years can be potentially risky and less creative. As a result, their oversight functions may be in jeopardy, impaired or reduced performances. The research findings reveal no significant indirect effects of the independent audit committee on the relationship between managerial ownership, independent board member and audit quality in the banks listed in IDX. Independent board members need to renew the appointment of the independent audit committee members to improve the quality of the oversight functions undertaken by the audit committee, and hence, enhance audit quality.

Preface to the Volume 2 Issue 2 of Indian Pacific Journal of Accounting and Finance

Preface to the Volume 2 Issue 2 of Indian Pacific Journal of Accounting and Finance

Family Ownership, Auditor Choice and Audit Fees: Evidence from Hong Kong

Purpose –The primary purpose of this paper is to examine the impact of family control/ownership on auditor choice and audit fees in Hong Kong. Besides, this paper also addresses the impact of multiple directorship of audit committee members on these two external auditing dimensions.Design/methodology/approach –Panel data technique is used to perform analysis. The unbalanced panel data set consists of 2,724 firm-year observations for nine years from year 2001 to 2009.Findings –The results indicate that family firms have a higher likelihood to appoint Big 5 auditors, it supports the signaling hypothesis. Contrasting the perceived higher audit risk, they incur lower audit fees. The results also show the independent audit committee members with multiple directorships are not affected by their busyness. Our results are also robust to the alternative definition of family firms and by using the sub-sample within 2004 - 2009. We also find that the firms controlled by recognized Big family in Hong Kong society incur higher audit fees but no support for family firm incurring higher non audit fee.Originality/value–First, our paper responds to the recent call for research for auditor choice and audit fees within the context of emerging economies. Secondly, this paper also explores other determinants of auditor choice and audit fees in HK such as the characteristics of the audit committee and multiple directorships. Thirdly, our findings contribute to the family firms’ literature by shedding light on family firms do enhance their external auditing function to improve the credibility of financial reporting of the firms which is expected to help investors and public in HK to know more about the effect of family control on the external auditing to protect their interest. The findings in this paper are also valuable to regulators who might concern the corporate governance and informativeness in family firms.

Audit committee attributes and firm performance: evidence from Malaysian finance companies

Purpose– The purpose of this paper is to examine the impact of audit committee (AC) attributes on the performance of finance companies in Malaysia in both period before and after the Malaysian Code on Corporate Governance (MCCG) was issued in order to determine which of the AC attributes enhances performance of finance companies in Malaysia.Design/methodology/approach– The population of the study comprises firms listed under finance sector of the main market of Bursa Malaysia. The number of firms listed on the main market of Bursa Malaysia as at the time of data collection (2012) was 822, out of which 37 were finance firms. Since the number of finance companies listed on the main market was only 37, all companies were used as sample for this study. This comprises companies involved in commercial, investment and Islamic banking, insurance,Takafuland other finance-related services. The sample for the period prior to MCCG varies over the period of observation. The number of finance companies in 1992, 1993, 1994, 1995 and 1996 was 36, 40, 44, 47 and 54, respectively. The sample comprises companies in commercial banking, investment banking, Islamic banking, insurance,Takafuland other finance-related services. The sample comprises firms listed on the main board of Kuala Lumpur stock exchange as it was called before the name was changed to Bursa Malaysia. The companies listed under the Ace market are not included due to their small number and because they are subject to different listing requirements. The list of the finance companies for the period 2007-2011 is obtained from the web site of Bursa Malaysia while for the period 1992-1996, the list is obtained from Bursa Malaysia knowledge centre. The observation period for the study covers financial period from 2007 to 2011 which represents post MCCG period while period from 1992 to 1996 represents the period before MCCG.Findings– The findings suggests a significant positive relationship between independent AC members and profitability while dual membership of directors on audit and nomination committee is significant and negatively related with profitability. The result supports agency theory which suggests that independent directors provide effective monitoring of the management thereby enhancing profitability and reducing possibility for opportunistic behavior by the management and ultimately enhancing performance. In addition, the result indicates that there was significant improvement in corporate governance in finance companies after the MCCG was issued compared to the period before it was issued.Research limitations/implications– The study focussed only on finance companies listed on Bursa Malaysia. The attributes examined include independence, expertise, experience, executive membership and interlock of directors, future studies could examine other attributes such as internal process of the committee and personal characteristics of the directors. Furthermore, the study used secondary data future studies could use primary data or a combination of primary and secondary data. The study only examined the period before MCCG and after the code was issued, future study could examine the impact of the first and second revision and compare it with period after the first and second revision.Practical implications– The findings contribute to the literature and the understanding of the influence of AC attributes such as independence and experience of the directors on the committee by showing an association between director independence, expertise, experience and improved performance. Management and board of companies may use the findings to make appropriate choices about AC attributes and governance mechanisms to improve performance particularly with regards to independence, expertise, experience and interlock of the directors.Social implications– The study has provided policy makers with a better understanding of the various features a AC should have which could be incorporated in future policy formulation in order to safeguard investments of shareholders, protect the interest of various stakeholders and enhance the flow of capital and foreign direct investment into finance companies and the economy in general. Comparison of the result between the pre MCCG and post MCCG period shows an improvement in corporate governance in finance companies after the MCCG was issued. This implies that the initial issue of MCCG impacted positively on the governance of the finance companies.Originality/value– To best of the authors knowledge the study is the first to examine the attributes of AC in finance sector as a whole and to examine the impact in the period before and after the MCCG was issued.

CORPORATE GOVERNANCE DAN PENGUNGKAPAN LINGKUNGAN BERDASARKAN ISO 14001 DI INDONESIA

The purposes of this study were determine the level of environmental disclosure in Indonesia, examining differences in the level of environmental disclosure in ISO 14001 certified company between service firms and manufacturing companies. The study also examines the effect of corporate governance on environmental disclosure. Corporate governance is proxied as the number of commissioners, the proportion of independent commissioners, the number of commissioners meeting, the number of audit committee members, the proportion of independent audit committee members, and the number of audit committee meetings. In this study, firm size and industry type are used as control variables. Environmental disclosure is measured by the elements of ISO 14001. The sample in this study 60 companies certified ISO 14001 and 60 companies non certified ISO 14001 listed in the Indonesia Stock Exchange (BEI) in 2009 and 2010. Sample selection is done by purposive sampling. Technical analysis is a classic assumption test, descriptive statistics and hypothesis testing using multiple regression, t-test, and Annova. The results showed the average environmental disclosures in Indonesia amounted to 60.71% for companies that certified ISO 14001 and 25.98% for companies that non certified ISO 14001. There are differences in the level of disclosure in the company's ISO 14001 certified between service firms and manufacturing companies. Based on test results using 0.05 significance level variables were significant positive effect on environmental disclosure is the proportion of independent audit committee. Control variables firm size and industry type on disclosure of environmental impact at the level of 10%.Key word : corporate governance, board of commissioners, audit committee, environmental disclosure.

Tax Avoidance, Financial Experts on the Board, and Business Strategy

We examine how firm business strategy interacts with the presence of financial expert directors on the audit committee to influence corporate tax avoidance. We find that firms that follow a cost leadership strategy, minimize their exposure to risk and uncertainty, and strive to maintain organizational and operational stability (Defenders) have lower cash effective tax rates when there is at least one financial expert director on the audit committee. On the other hand, firms focusing more on innovation and change and entering new product and geographic markets (Prospectors) have higher cash and GAAP effective tax rates and lower total book tax differences when there is at least one financial expert director on the audit committee. Our findings suggest that independent audit committee members with financial expertise (accounting or otherwise) are able to assess their firm’s business strategy and effectively monitor corporate tax avoidance activity specifically in the context of that business strategy.

Audit Committee Stock Options and Financial Reporting Quality after the Sarbanes-Oxley Act of 2002

SUMMARY The Sarbanes-Oxley Act (SOX) and its associated regulations significantly expanded the oversight role of audit committees and improved independence, but regulators bypassed restrictions on audit committee equity incentives. We examine the association of audit committee members' equity incentives and financial reporting quality in the post-SOX time period. We find that audit committee members' stock-option awards and holdings are positively associated with the likelihood of meeting/beating analyst earnings forecasts. On average, a company whose audit committee holds the mean value of exercisable option holdings is associated with a 10.0 percent increase in the likelihood of meeting or just beating its consensus analyst forecast. This effect increases to 17.8 percent for companies with high-growth opportunities. These results suggest that—even in the post-SOX era—the stock-option incentives provided to independent audit committee members are associated with reduced financial reporting quality. JEL Classifications: M41, M42