scholarly journals Corporate Governance and Equity Prices: The Effect of Board of Directors and Audit Committee Independence

2018 ◽  
Vol 21 (2) ◽  
pp. 152-164
Author(s):  
Taher Hamza ◽  
Nada Mselmi
Keyword(s):  
Stock Returns ◽  
Audit Committee ◽  
Abnormal Returns ◽  
Jel Classification ◽  
Equity Returns ◽  
Audit Committees ◽  
Independent Directors ◽  
Board Independence ◽  
Equity Prices ◽  
Listed Firms

This paper investigates the effect of board and audit committee independence on firm market performance. Using a sample of French listed firms, we find a negative and significant relation between board independence and equity returns. This suggests that appointing more independent directors fails in enhancing firm stock returns. Furthermore, we show that firms with independent audit committees exhibit higher equity returns. We analyze three portfolios sorted by the percentage of independent directors on boards and audit committees using Carhart’s model and find that the portfolio of firms with low board independence and high audit committee independence exhibits the highest abnormal returns. JEL Classification: G34, G11

scholarly journals Optimal board independence with gray independent directors

2020 ◽  
pp. 234094442094031
Author(s):  
Bartolomé Pascual-Fuster ◽  
Rafel Crespí-Cladera
Keyword(s):  
Corporate Governance ◽  
Jel Classification ◽  
Previous Literature ◽  
Independent Directors ◽  
Board Independence ◽  
Board Structure ◽  
Listed Firms ◽  
Governance Practices ◽  
Independence Results ◽  
Recommended Level

Based on the optimal board independence theory, we analyze how Spanish listed firms determine the presence of genuine and gray independent directors. We classify independents as gray whenever they do not satisfy formal independence requirements. Given the findings in previous literature, this type of gray independent does not promote poor corporate governance practices. Our results suggest that the presence of gray and genuine independent directors is related to the optimal board independence determinants as if both provided real board independence. Results are not affected by the number and the type of unsatisfied independence criteria, nor by the firm’s achievement of regulators’ recommended level of board independence. Therefore, we conclude that firms pay little attention to formal independence requirements to reach their optimal board structure. JEL CLASSIFICATION: G30; G34; K22

Did the 1999 NYSE and NASDAQ Listing Standard Changes on Audit Committee Composition Benefit Investors?

2017 ◽  
Vol 92 (6) ◽  
pp. 187-212 ◽  
Author(s):  
Seil Kim ◽  
April Klein
Keyword(s):  
Financial Reporting ◽  
Audit Committee ◽  
Research Question ◽  
Reporting Quality ◽  
Audit Committees ◽  
Financial Reporting Quality ◽  
Difference In Differences ◽  
Listed Firms ◽  
Sarbanes Oxley ◽  
Independent Audit

ABSTRACT In December 1999, the SEC instituted a new listing standard for NYSE and NASDAQ firms. Listed firms were now required to maintain fully independent audit committees with at least three members. In July 2002, the U.S. Congress legislated these standards through the Sarbanes-Oxley Act. Our research question is whether all investors benefited from the 1999 new rule. Using both an event study and a difference-in-differences methodology, we find no evidence of higher market value or better financial reporting quality resulting from this rule.

Does board independence constrain insider opportunism?

2020 ◽  
pp. 031289622094638
Author(s):  
Dewan Rahman ◽  
Robert Faff ◽  
Barry Oliver
Keyword(s):  
Research And Development ◽  
Insider Trading ◽  
Jel Classification ◽  
Independent Directors ◽  
Board Independence ◽  
Exogenous Shocks ◽  
Sarbanes Oxley ◽  
Trading Restrictions ◽  
The Impact ◽  
Identification Strategy

We examine whether insider opportunism is reduced by board independence. Using a sample of 18,194 firm-year observations over the period 1996–2016, we show that board independence constrains opportunistic insider trading. Our identification strategy uses the Sarbanes–Oxley Act of 2002 (SOX Act) and associated changes to the listing rules of NYSE/NASDAQ as a source of exogenous shocks in board independence. Our results are economically significant as insider opportunism declines by about 10.5%. We find that insider trading restrictions is the channel through which board independence reduces insider opportunism. Our additional analyses show that in competitive and R&D (research and development) intensive firms, the impact of board independence on opportunism is less pronounced. We also find that board independence constrains opportunism only in less complex firms. However, in co-opted boards, independent directors are less effective. Overall, we support the monitoring channel of board independence for reducing insider opportunism. JEL Classification: G14, G34, G40

Independent directors and firm value of group-affiliated firms

2017 ◽  
Vol 25 (2) ◽  
pp. 217-236 ◽  
Author(s):  
Amrinder Khosa
Keyword(s):  
Ownership Structure ◽  
Firm Value ◽  
Value Relevance ◽  
Institutional Setting ◽  
Independent Directors ◽  
Board Independence ◽  
Outside Directors ◽  
Content Type ◽  
Listed Firms ◽  
Indian Setting

Purpose This study aims to examine the effect of board independence on firm valuation of group-affiliated firms in distinct Indian setting. Design/methodology/approach This study uses a sample of 317 listed firms comprising 1,350 firm-year observations for the period 2008-2012. The value-relevance model is used to examine the effect of board independence on market value of equity. Findings The distinct finding of an inverse relationship between board independence and firm value of group-affiliated firms in India illustrates that effective monitoring by outside directors is largely influenced by the institutional setting and ownership structure. This study does not find any evidence of different valuation when comparing non-family CEOs and family CEOs. Practical implications Independent directors play an important role to stop abusive use of related-party transactions in an environment where principal–principal conflict exists. The study’s findings will prove useful in determining whether one should rely merely on the independent status of outside directors or the influence of institutional setting on effective governance. Originality/value This paper contributes to the existing literature in the following ways: it helps to gain a better understanding of business groups which are characterised by unique governance structures and the dominance of controlling families on the board, which makes the external governance mechanisms (i.e. independent directors and non-family CEOs) ineffective and it illustrates that effective monitoring by outside directors is largely influenced by the institutional setting and ownership structure.

The Association between Audit Committee Characteristics and Audit Fees

2003 ◽  
Vol 22 (2) ◽  
pp. 17-32 ◽  
Author(s):  
Lawrence J. Abbott ◽  
Susan Parker ◽  
Gary F. Peters ◽  
K. Raghunandan
Keyword(s):  
Audit Committee ◽  
Audit Fees ◽  
Audit Committees ◽  
Independent Directors ◽  
Span Of Control ◽  
Big 5 ◽  
Financial Expertise ◽  
Disclosure Rules ◽  
Using Data

This study examines the association between audit committee characteristics and audit fees, using data gathered under the recent SEC fee disclosure rules. We hypothesize that audit fees will be positively associated with audit committee independence, financial expertise, and meeting frequency. We examine a sample of 492 nonregulated, Big 5-audited firms that filed proxy statements with the SEC in the period from February 5, 2001 to June 30, 2001. We find that audit committee independence (defined as an audit committee comprised entirely of outside, independent directors) and financial expertise (defined as an audit committee containing at least one member with financial expertise) are significantly, positively associated with audit fees. This is in contrast to the findings of Carcello et al. (2002a), who find that audit committee characteristics are not significant in the presence of board-related variables. Meeting frequency (defined as an audit committee that meets at least four times annually) was not associated with higher audit fees at conventional levels. This evidence is consistent with audit committees taking actions within their span of control to ensure a higher level of audit coverage.

The Composition of Nonprofit Audit Committees

2006 ◽  
Vol 20 (1) ◽  
pp. 75-90 ◽  
Author(s):  
Thomas E. Vermeer ◽  
K. Raghunandan ◽  
Dana A. Forgione
Keyword(s):  
Nonprofit Organizations ◽  
Audit Committee ◽  
Nonprofit Sector ◽  
Internal Audit ◽  
Audit Committees ◽  
Chief Financial Officers ◽  
Independent Directors ◽  
Government Grants ◽  
Sarbanes Oxley ◽  
Financial Expert

Audit committee composition has attracted significant attention from legislators and regulators in recent years. Although most of the focus has been on corporate audit committees, recent legislative efforts underscore the importance of governance in the nonprofit sector. Using data from a survey of 118 chief financial officers of nonprofit organizations as well as financial data from the GuideStar database, we examine the composition of nonprofit audit committees and factors associated with their composition. The data show that many nonprofits have not adopted Sarbanes-Oxley reforms, since we find that 36 percent of nonprofits have audit committees that are not completely independent. Organizations that are larger, receive government grants, and use a Big 4 auditor are more likely to have audit committees with solely independent directors. Surprisingly, universities and hospitals are less likely to have solely independent directors on the audit committee. Eighty-eight percent of nonprofits have at least one financial expert on the audit committee, and organizations that receive government grants and have an internal audit function are more likely to have a financial expert on the committee. Overall, our findings support the view that nonprofit audit committee composition varies in response to the demands related to the need for resources, the presence of other monitoring mechanisms, and the type of nonprofit.

scholarly journals Does Audit Committee Characteristics Promote Risk Management Practices in Nigerian Listed Firms?

2021 ◽  
Vol 10 (2) ◽  
pp. 70
Author(s):  
Stephen A. Ojeka ◽  
Alex Adeboye ◽  
Olajide Dahunsi
Keyword(s):  
Risk Management ◽  
Board Of Directors ◽  
Audit Committee ◽  
Financial Risk ◽  
Enterprise Risk Management ◽  
Audit Committees ◽  
Listed Firms ◽  
Enterprise Risk ◽  
The Board Of Directors ◽  
Accounting Expertise

There has been a huge and deluge of risk threatening industries at an unequalled magnitude in recent times. As such, the board of directors and senior executives are increasingly expected to manage their various organizations' risk portfolios, affecting their financial performance. This has led to the assigning of the risk assessment role to the audit committee. The board of directors and its audit committee play an essential function in Enterprise Risk Management (ERM) by building up the right condition or tone-at-the-top. Given the board's responsibilities for representing the interests of shareholders, it plays a vital role in overseeing management's approach to ERM. This study examined the relationship between audit committee characteristics and risk management of some selected listed firms in a developing country like Nigeria. The study used secondary data to describe the dependent variable (financial risk decomposed into credit risk and liquidity risk) and the explanatory variables (decomposed into audit committee accounting expertise, audit committee meetings, audit committee independence and audit committee gender). The study used pair sample t-test, student t-test, Pearson Moment Correlation and random panel data estimator for twenty (20) selected listed firms for 2012-2016. Findings indicate that there is a negative between audit committee accounting expertise and financial risk. This revealed that Accounting Expertise in Audit Committees are likely to involve in activities and practices to curb financial risk. In addition, the Audit committee meeting indicates a negative relationship with credit risk. Audit committee gender and audit committee independence have a negative effect on liquidity risk. Therefore, this study recommends that Audit committees embrace Enterprise Risk Management (ERM) to manage risks effectively across the organization. Risk management processes should be one of the major points of discussion during audit committee meetings.

scholarly journals Tax Aggressiveness, Corporate Governance and Audit Fees: A Study of Listed Firms in Nigeria

2020 ◽  
Vol 11 (6) ◽  
pp. 278
Author(s):  
E. A. Onatuyeh ◽  
I. Ukolobi
Keyword(s):  
Corporate Governance ◽  
Audit Committee ◽  
Gender Diversity ◽  
Female Gender ◽  
Audit Fees ◽  
Board Independence ◽  
Tax Rate ◽  
Tax Aggressiveness ◽  
Listed Firms ◽  
Board Gender Diversity

The concept of audit fee has received immense empirical investigation in literature. However, these vast studies have not sufficiently explored the relation of the concept with tax aggressiveness and corporate governance. This study therefore sought to provide empirical evidence as to whether tax aggressive and corporate governance mechanisms are significantly associated with audit fees among listed firms in Nigeria. Leaning on the agency and stakeholder theories, the study examined the measures of tax aggressiveness of effective tax rate and cash tax rate as well as corporate governance mechanisms of board gender diversity, audit committee diligence, and board independence; and how these variables explain changes in external audit fees. A sample of one hundred and seven (107) firms from the entire firms quoted on the Nigerian Stock Exchange as at December, 2018 was utilised. Data were sourced solely from annual financial statements of the studied firms over a ten-year period (2009 to 2018). The panel regression technique, with preference for the random effect model based on the outcome of the Hausman test, was employed to estimate the balanced panel data. The results of the study showed that cash tax rate, audit committee diligence and board independence all exert positive and significant effect on audit fees. Surprisingly, the study revealed a positive but statistically insignificant link between board gender diversity and audit fees. This result may not be unconnected with the low presence of female directors on the board of the firms investigated. In light of the findings, we therefore recommend that more female gender should be allowed to sit on the boards of listed firms in Nigeria in line with the Norwegian model of 40% female gender representation and the Federal Government 35% Affirmative Action. We also recommend that board independence should be encouraged more so as to enhance their oversight functions, and promote quality financial reporting and audit amongst listed firms in Nigeria.

scholarly journals Prospectus disclosure and the stock market performance of initial public offerings (IPOs): the case of Thailand

2016 ◽  
Vol 13 (4) ◽  
pp. 160-179
Author(s):  
Kulabutr Komenkul ◽  
Mohamed Sherif ◽  
Bing Xu
Keyword(s):  
Stock Returns ◽  
Initial Public Offerings ◽  
Initial Public Offering ◽  
Abnormal Return ◽  
Stock Exchange ◽  
Abnormal Returns ◽  
Jel Classification ◽  
Ipo Underpricing ◽  
Stock Market Performance ◽  
Wide Range

This study examines if the prospectus disclosure of the motives for an initial public offering (IPO) explains the long-run performance of equity issuers using hand-collected data for 245 IPOs from the Stock Exchange of Thailand (SET), and also the Market for Alternative Investments (MAI), in the 12-year period between 2001 and 2012. The stock returns of the IPOs were investigated using cumulative abnormal return (CAR) and buy-and-hold abnormal return (BHAR). The authors find a significant impact for the level of use-of-proceeds disclosure on IPO underpricing, and further that the ex-ante uncertainty and signalling hypotheses explain the IPO underpricing phenomenon in the Thai IPO market. Furthermore, Thai firms citing investment needs show significant positive abnormal returns after the offering, but issuers that state general corporate purposes and debt payments motives underperform. The authors provide evidence that the offering size and bull-market conditions significantly affect the IPO pricing and the strategic disclosure of information in the prospectus. Our results are robust, having been subjected to a wide range of sensitivity checks. Keywords: Prospectus disclosure, IPO performance, Thailand. JEL Classification: G14, G30, G32

Board independence and firm performance: evidence from Kuwait

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Mejbel Al-Saidi
Keyword(s):  
Firm Performance ◽  
Least Square ◽  
Independent Directors ◽  
Board Independence ◽  
Content Type ◽  
Listed Firms ◽  
Ordinary Least Square ◽  
Large Shareholders ◽  
The Relationship

Purpose This paper aims to reduce the knowledge gap by using a large sample and different regressions while controlling the endogeneity and causality issues. Design/methodology/approach This study used the ordinary least square (OLS) and two stage least squares (2SLS) regressions to control the endogeneity and causality problems; this estimation strategy allows for comparison of both estimates to identify any inconsistency and biases in the parameters. Findings General speaking, this study found that board independence negatively affected firm performance based on Tobin’s Q only and the relationship between the two variables ran from board independence to firm performance but not vice versa. Originality/value The current independent directors are not adding value to Kuwait’s listed firms. Some directors who represent large shareholders and the conflict between large shareholders and small shareholders could affect the role of independent directors in Kuwait. To best of the researchers’ knowledge, this study is the first to consider board independent after controlling the issues of endogeneity and causality in Kuwait; thus, the results could be useful for Kuwaiti firms, regulators and policymakers.

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