Audit Committee Characteristics and Financial Performance: Indonesian Evidence

Abstract

This research investigates the effect of audit committee characteristics, which includes independence (ACIN), size (ACSIZE), competence (ACCO), and frequency of meetings (ACMT) on the financial performance (PERF) of manufacturing firms listed on the Indonesian Stock Exchange for the year of 2016 and 2017. PERF is measured and proxy with the return on assets (ROA); ACIN is measured by the percentage of members from outside the company; ACCO is measured using percentage of audit committee members who have accounting and finance educational background; and ACMT is measured using the number of audit committee meetings in 2016 and 2017. This study uses a sample of 466 observations of publicly listed companies on the Indonesian Stock Exchange for the fiscal year that ends on December 31, 2016 through 2017 which are retrieved for 660 listed companies' population. The study finds that all of the characteristics of audit committee positively affect the company's performance. The research also uses three control variables, which are the quality of auditors (BIG4), financial leverage (LEV) and company size (SIZE). BIG4 and LEV positively affect the company's financial performance, while the financial performance of the company is negatively affected by SIZE.

The Influence of Audit Committee Characteristics on Company Performance in Sharia General Banking

“…This because financial statements have to be reviewed by an audit committee before they are disclosed to the public (Ashari, 2020). This result is in line with research conducted by Yuliani (2018), where in the research it was found that the characteristics of the audit committee together simultaneously influenced the financial performance of pharmaceutical companies listed on the Indonesia Stock Exchange in 2012-2016.…”

“…This is reinforced by the results of research Zraiq (2018), which states that the audit committee size is positive and significant associated with EPS. Also in Ashari and Krismiaji research in 2020 study showed that the size of the audit committee has a positive effect on company performance (Ashari, 2020). H1: The size of the audit committee middle category affected the company performance.…”

“…An independent member can be regarded as a good watchdog because it is considered more objective and critical of the policies made by management. Sari (2018) and Ashari (2020) found that the audit committee independence had a positive effect on company performance. H4: The audit committee independence affected the company performance.…”

“…In a study conducted Ashari (2020) showed that the results showed characteristics: independence of audit committee, the audit committee size, and the number of audit committee meetings affect positively to company performance. H5: The size of the audit committee, audit committee meeting frequency, and audit committee independence simultaneously affected the company performance.…”

Factors Influencing External Auditors’ Independence of Private Audit Firms in Ethiopia

“…;Ashari & Krismiaji (2020);Alderman & Jollineau (2020); andWidiatami et al (2020) concluded that the development of audit committees has a strong positive effect on auditor independence. This indicates that in existence of audit committee in has constructive influence on auditor's independence.Information Technology: the result of this study shows that information technology with coefficient of regression [=0.263] has positive and statistically insignificant since (p-value of 0.…”