Presence Of Financial Experts Research Articles

Audit committee composition and earnings management in a specific institutional environment: the case of Russia

PurposeThe purpose of this paper is to investigate the specifics of the relationship between audit committee characteristics and earnings management in Russian listed companies. This research is driven by the possibility of placing this relationship within the context of a specific institutional environment for company performance.Design/methodology/approachThe authors apply a panel study of 184 Russian listed companies for the period 2014–2018. In addition to the standard fixed effects model, the authors test the results for potential endogeneity with two-stage least squares (2SLS) analysis.FindingsThe results show that audit committee representation on the board of directors results in some mitigation of earnings management. Results reveal that a higher level of audit committee independence and the presence of financial expertise on the committee are associated with lower earnings management. However, companies with relatively busy directors on audit committees are more inclined to practice earnings management. The study’s findings hold after testing for endogeneity of audit committee independence. The authors also reveal that some audit committee characteristics (for example, audit committee independence; its level of expertise) alleviate earnings management in listed state-owned companies (SOEs) more strongly than in listed non-SOEs.Originality/valueThe results add to the ongoing debate on the role of corporate governance mechanisms in mitigating earnings management in emerging markets by taking into account the type of ownership (state-owned vs private) as a moderating variable. This study reveals, in particular, that the effect of certain audit committee characteristics on earnings management is more prominent in listed SOEs than in listed non-SOEs.

PENGARUH GENDER FINANCIAL EXPERTISE KOMITE AUDIT TERHADAP PRAKTIK MANAJEMEN LABA PERUSAHAAN NON-KEUANGAN YANG TERDAFTAR DI BEI PERIODE 2016-2018

Earnings management is a manager's choice to choose accounting policies or real actions to achieve certain earnings goals. This study aims to examine the effect of the gender financial expertise of the audit committee on earnings management practices. This study uses 852 samples of non-financial companies listed on the Indonesia Stock Exchange in 2016-2018 by using multiple linear regression analysis with classical assumption testing. The result of this study is the indication that committee audit financial expertise (EXPERT), proportion of the number of women on the audit committee (ACFD), and proportion of female financial experts on the audit committee (FEMEX) do not have a significant influence on earnings management as measured by using discretionary accruals. On the contrary, the proportion of male financial experts on the audit committee (MALEX), has a significant positive effect on earnings management. This shows that the presence of financial expertise that affects earnings management has been influenced by the sex of male financial experts. This research is in accordance with the theory that reveals that there are different effects with the existence of gender differences in a company.

The relationship of board of directors, audit committee and earnings management: Analysis of Russian public companies

Using the sample of Russian public companies, this paper analyzes the relationship between the level of earnings management and several characteristics of the board of directors, the key element of the firm’s corporate governance. A particular attention is devoted to the audit committee — its structure and the characteristics of its members. The object of the study are 184 Russian public companies for 2014-2018. The analysis demonstrates the inverse relationship between the magnitude of earnings management and several attributes of the board of directors — its size, presence of the audit committee, the proportion of independent directors on Board. A similar type of relationship is revealed at the level of the audit committee for the proportion of independent directors in the committee and the presence of financial experts in the committee. At the same time, there is a positive relationship between the number of directorships positions of the audit committee members and the magnitude of earnings management. The results indicate that several characteristics of corporate governance might have a potential for restraining earnings management in Russian public companies.

Do financial experts on audit committees matter for bank insolvency risk-taking? The monitoring role of bank regulation and ethical policy

This paper analyses the relationship between the presence of financial experts on audit committees and the levels of insolvency risk in the banking sector. The main contribution is the introduction of banking sector regulation and ethical policies as moderators of this relationship. By using a sample of 159 banks from different countries for the period 2004–2010, empirical results suggest that the presence of financial experts on audit committees is useful to reduce insolvency risk, supporting the monitoring advantage hypothesis of financial expertise. This relationship is stronger when banking sector regulation is weaker and also in banks with stronger policies against unethical practices. These findings suggest that financial expertise substitutes regulation and complements ethical policies in reducing insolvency risk.

Corporate Governance and Intangibles Disclosure as Determinants of Corporate Reputation

The paper investigates corporate governance mechanisms and the voluntary disclosure of intangible assets as determinants of corporate reputation. Reputation scores from Management Today Britain’s “Most Admired Companies” 2004 survey are applied as a measure of corporate reputation. A content analysis method is applied to UK 2003/2004 annual reports in establishing the voluntary disclosure index which consists of structural, relational and human capital attributes. This paper suggests that when the resource based view of the firm is applied together with signalling theory, both the presence and disclosure of corporate governance structures and intangible resources is important if markets are to acknowledge a firm’s quality and reputation; the agency approach is twofold, on the one hand the existence of governance structures allows firms to draw on various corporate governance mechanisms that may align directors’ interests with the firm’s objectives; on the other hand, governance mechanisms may enhance accountability and transparency through disclosure and therefore mitigate risks associated with asymmetry of information. The results of the analysis indicate that financial performance and growth enhance corporate reputation whereas directors’ share ownership and executive remuneration appear to hinder the development and maintenance of corporate reputation. The presence of financial expertise on the audit committee is a governance mechanism that appears to be employed by firms whose strategy comprises building and developing corporate reputation. In addition, maintenance of lower voluntary disclosure of intangible assets appears to appeal to firms with higher levels of corporate reputation whereas, although the relationship is weaker, higher levels of financial gearing lead to lower corporate reputations as perceived by stakeholders. Furthermore, the results indicate that the proportion of experienced non-executive directors to total directors is insignificant in explaining the variation in corporate reputation. Management strategies differ significantly as they may be tailored to build and develop corporate reputation or tailored to maintain such reputations once attained.

Audit committees, non-audit services, and auditor reporting decisions prior to failure

This study investigates the associations between audit committee characteristics and the likelihood of auditors' going-concern decisions among UK failed firms. Specifically, we examine whether the threat posed by auditor-provided non-audit services (NAS) to auditors' reporting decisions is mediated by audit committee characteristics. We find that failed firms with higher proportions of independent non-executive directors (NEDs) and financial experts on the audit committee are more likely to receive auditor going-concern modifications prior to failure, but that there is no significant relationship between NAS fees and the likelihood of receiving a going-concern modification. The evidence further suggests that the association between NAS and auditors' reporting decisions is subject to audit committee characteristics. Where the audit committee is more independent and includes a greater proportion of financial experts, auditors providing the client with NAS are less likely to issue a standard unmodified going-concern report prior to failure. Overall, the findings provide support for corporate governance regulators' concerns about the monitoring benefits of audit committee independence and the presence of financial expertise on the audit committee for auditors' reporting decisions.

Are listed firms better governed? Empirical evidence on board structure and financial performance

We examine the relationship among board characteristics (network centrality, leadership structure, outsider participation, portion of male directors, director age, and presence of financial experts) and firm-level financial performance (cash holdings, leverage, ROA, risk, and risk-adjusted return). Our data encompass firms from eight countries during 2003-2012. Unlisted firms are smaller and have less leverage. Despite the fact that unlisted firms have prima facie better average governance (they are less likely to have an executive chair (or CEO as chair of the board) and a higher average portion of outside directors), they exhibit worse risk-adjusted returns. Higher levels of director connectedness (centrality) are generally associated with more observable entrenchment (more cash, less leverage), whereas other board characteristics do not show clear relationships with entrenchment. Our findings are consistent with the view that firmly established CEOs are willing and able to pack the board with qualified and connected members, who nevertheless do not act to constrain CEO entrenchment. This is true for both listed and unlisted firms

Do Independence and Financial Expertise of the Board Matter for Risk Taking and Performance?

We examine how risk taking and firm value are related to board independence and financial expertise for a broad sample of U.S. financial institutions during the 2001 to 2008 period. Market-based measures of risk are negatively related to the percent of independent directors, while market-based risk measures, leverage, and stock performance prior to the crisis are all positively related to the percent of independent directors who are financial experts. These associations are primarily driven by large banks in our sample. During the crisis, financial expertise is negatively related to both Tobin's Q and cumulative stock performance and positively related to the probability of receiving TARP funds. The results are consistent with financial expertise being associated with more risk taking and higher firm value especially for large banks prior to the crisis; however, the presence of financial experts on the banks' boards did not help in alleviating the impact of the financial crisis.