Overlapping Membership on Audit and Compensation Committees and Financial Reporting Quality

Habib, Ahsan; Bhuiyan, Md. Borhan Uddin

doi:10.1111/auar.12086

Cited by 32 publications

(51 citation statements)

References 78 publications

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“…Referring to previous research (Masulis and Mobbs, 2014; Mendez et al., 2017; Cashman et al., 2012; Field et al., 2013; Andres et al., 2013; Kusnadi et al., 2016; Charas, 2015; Bravo and Reguera-Alvarado, 2017; Habib et al., 2016; Harymawan and Nowland, 2016; Tao and Hutchinson, 2013) the control variables used in this study include: CEO tenure (TENURE), the existence of a nomination and remuneration committee (NRC), board size (BOARDSIZE), the percentage of independent commissioners (INDCOM), number of audit committee members (AUDCOM), the existence of Big4 auditors (BIG4), firm leverage (LEVERAGE), firm size (FIRMSIZE), firm age (FIRMAGE) and operating cash flow (OCF). Financial variables are winsorized at the 1% and 99% levels.…”

Section: Methodsmentioning

confidence: 94%

CEO busyness and firm performance: evidence from Indonesia

Harymawan

Nasih

Ratri

et al. 2019

Heliyon

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This study investigates whether busy CEOs are associated with lower firm performance, and if this relationship is moderated by firm growth, CEO tenure and corporate governance practices in Indonesia. This study uses 876 firms-year observations from 268 firms listed on the Indonesia Stock Exchange (IDX) for the period spanning 2014 to 2017. We find that busy CEOs are associated with lower firm performance. This negative relationship is stronger in firms with high growth and when busy CEOs have shorter tenure. We also show that corporate governance practices have no impact on the negative relationship between CEO busyness and firm performance. For firms and shareholders, our findings indicate that it is not a good idea for CEOs to hold two or more outside directorships, particularly in the early years of taking up their CEO position. Our results suggest that restrictions on CEO busyness would be beneficial to shareholders.

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Section: Methodsmentioning

confidence: 94%

CEO busyness and firm performance: evidence from Indonesia

Harymawan

Nasih

Ratri

et al. 2019

Heliyon

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“…Applying all 15 factors in regression models to test AC quality is burdensome, so we use a filter mechanism and use only statistically significant factors from a regression with firm value (industry‐adjusted Tobin's Q ). The process results in three statistically significant factors, including ‘AC director busyness 1’ and ‘AC foreign member’, which are negatively related to firm value, and ‘AC overlapping board members’, which we show is positively related to firm value (Habib & Bhuiyan, 2016). It is noteworthy that the three factors have received limited attention in the AC literature, which has predominately focused on AC expertise, independence and meetings.…”

Section: Introductionmentioning

confidence: 75%

“…The occurrence of overlapped board members is often debated as a positive influence on the integrity of financial reporting. For example, Habib and Bhuiyan (2016) report that overlapping membership improves financial reporting quality by reducing information asymmetry.…”

Section: Methodsmentioning

confidence: 99%

“…The presence of overlapped board members who serve on more than one committee is often argued to be a positive influence on the integrity of a firm's financial reporting. For example, Habib and Bhuiyan (2016) report a positive relation between overlapping membership of committees and improvements in financial reporting quality, especially when overlapping directors own equity. Furthermore, the size of the AC is generally associated with higher financial reporting quality (e.g., Abbott, Parker, Peters, & Raghunandan, 2003; Hoitash, Hoitash, & Bedard, 2009; Vafeas & Waegelein, 2007; Zaman et al., 2011).…”

Section: Methodsmentioning

confidence: 99%

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Audit committee quality indices, reporting quality and firm value

Almaqoushi

Powell

2020

Business Fin & Account

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We investigate the relation between audit committee (AC) quality indices, financial reporting, internal control quality and firm value using a US dataset for the period 2002–12. The indices are developed by linking firm value with principal component analysis (PCA) factors based on a broad set of 82 AC variables, some of which influence the quality of the AC, but are not addressed in prior literature. Significant AC factors include ‘overlapping directors’, ‘busyness’ and ‘foreign director’, and we use these factors to develop ‘high’ and ‘low’ AC quality indices. We show that low AC quality firms are more likely to manage earnings, be external auditor dependent with respect to non‐audit tax services, and switch to a lower quality auditor. Low AC quality firms are also more likely to have internal control concerns disclosed by predecessor auditors, including accounting issues, financial restatements, audit opinion concerns and deficiencies that undermine internal control effectiveness. Further, they are more likely to receive an audit report containing additional explanatory notes. Conversely, high AC quality firms are significantly less likely to have these concerns. Our findings highlight the value of using AC quality indices in delivering greater oversight of the financial reporting process.

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“…The quality of a company's external audit is considered as an essential antecedent of reporting quality (Behn, Choi, & Kang, 2008). The employment of a Big Four auditor (BIGFOURAUD) may promote higher audit quality, and hence reduce earnings man-agement (Habib & Bhuiyan, 2016a). This is proxied by BIG-FOURAUD that serves as one if the company is audited by a Big Four auditor, and zero otherwise.…”

Section: Tablementioning

confidence: 99%

CAE Remuneration and Financial Reporting Quality

Alzeban¹

2021

RC-SAR

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Remuneración del Director Ejecutivo de la Auditoría y Calidad de la Información Financiera. En este trabajo se explora la relación entre la remuneración fija pagada al Director Ejecutivo de Auditoría (CAE) y la consiguiente calidad de la información financiera (FRQ). Así, se argumenta que una estrategia de remuneración basada en el rendimiento de la empresa es perjudicial para la FRQ, y que cuando el CAE recibe una remuneración fija, hay menos amenazas para la objetividad de la auditoría interna (IA) y, por lo tanto, una mayor FRQ como aproximación a la calidad de los informes financieros. Los datos se obtienen a través de una encuesta, y la información se recoge de los informes anuales. Los resultados indican que cuando el CAE es compensado de acuerdo con el desempeño de la empresa, la objetividad se reduce, con el consiguiente resultado de que la FRQ se ve afectada. Además, cuando la remuneración y compensación del CAE es aprobada por el comité de auditoría, en lugar de por el CEO, la FRQ es mayor. También se encuentran pruebas de que los efectos de la objetividad de la IA se eliminan cuando el CEO participa en la aprobación de la remuneración y compensación del CAE. El estudio aporta ideas sobre la cuestión de si la remuneración del CAE mejora la objetividad de la IA y, al hacerlo, es de interés para los comités de auditoría con responsabilidad en esa dirección. Se utilizan dos métodos de estimación diferentes para confirmar la solidez de los resultados. This paper reports on a study exploring the relationship between the fixed remuneration paid to the Chief Auditing Executive (CAE), and the subsequent financial reporting quality (FRQ). The study argues from the viewpoint that a strategy of compensation provided on the basis of company performance is detrimental to FRQ, and that when the CAE receives fixed remuneration, there is less threat to internal audit (IA) objectivity, and hence, greater FRQ as proxied by accruals quality. Data are obtained via a survey questionnaire, and information offered within annual reports. The findings indicate that when the CAE is compensated according to company performance, objectivity is reduced, with the consequent outcome that FRQ is impaired. Furthermore, when CAE remuneration and compensation are approved by the audit committee, rather than by the CEO, FRQ is higher. Evidence that the effects of IA objectivity are eliminated when the CEO is involved in approving CAE remuneration and compensation is also found. The study provides insights into the question of whether CAE remuneration enhances IA objectivity, and in doing so is of interest to audit committees with responsibility in that direction. Two different estimation methods are used as a means of confirming the robustness of these results.

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Overlapping Membership on Audit and Compensation Committees and Financial Reporting Quality

Cited by 32 publications

References 78 publications

CEO busyness and firm performance: evidence from Indonesia

CEO busyness and firm performance: evidence from Indonesia

Audit committee quality indices, reporting quality and firm value

CAE Remuneration and Financial Reporting Quality

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