The Impact of Audit Committee and Its Characteristics on the Firms’ Information Environment

Document Type: Research Paper

Authors

Department of Accounting, University of Mazandaran, Babolsar, Iran

Abstract

The present study aims at investigating the impact of the presence of audit committee and its characteristics on the corporate information environment. These characteristics include independence, financial expertise, size, and the gender of the audit committee. Although several methods have been discussed for measuring information environment in the accounting and finance literature, this research is pioneer in developing a comprehensive index using mathematical method to measure information environment. Given this fact, the impact of the presence of audit committee on information environment during 2008-2015, which was the period before and after the approval of the internal control guidelines, was investigated. The results of analyzing the data collected from 41 firms using panel data technique point to a positive relationship between the presence of audit committee and information environment. In addition, the impact of the audit committee characteristics on information environment during 2012-2015 and after the approval of guidelines was examined. The results of analyzing 121 firms using panel data technique indicate that independence and financial expertise are positively associated with information environment. However, no significant relationship was found between other characteristics and information environment.

Keywords

Main Subjects


Article Title [Persian]

تأثیر وجود کمیتۀ حسابرسی و ویژگی‌های آن بر محیط اطلاعاتی شرکت

Authors [Persian]

  • حسین فخاری
  • یاسر رضائی پیته نوئی
گروه حسابداری ، دانشگاه مازندران، بابلسر، ایرن
Abstract [Persian]

مطالعۀ حاضر به بررسی تأثیر وجود کمیتۀ حسابرسی و ویژگی‌های آن بر محیط اطلاعاتی شرکت می‌پردازد. این ویژگی‌ها عبارت است از استقلال، تخصص مالی، اندازه و جنسیت کمیتۀ حسابرسی. اگرچه روش‌های متعددی برای اندازه‌گیری محیط اطلاعاتی ارائه شده است، در این پژوهش با درنظرگرفتن نتایج متفاوت به روش ریاضی شاخصی جامع برای سنجش محیط اطلاعاتی ارائه شده است. در این راستا، تأثیر وجود کمیتۀ حسابرسی بر محیط اطلاعاتی شرکت در بازۀ زمانی قبل و بعد از تصویب دستورالعمل کنترل‌های داخلی، طی سال‌های 1387 تا 1394 آزمون شد. نتایج بر اساس 41 شرکت از طریق داده‌های ترکیبی به روش تابلویی، رابطۀ معناداری بین وجود کمیتۀ حسابرسی و محیط اطلاعاتی شرکت نشان می‌دهد. در ادامه تأثیر ویژگی‌های کمیتۀ حسابرسی بر محیط اطلاعاتی شرکت در بازۀ زمانی بعد از تصویب دستورالعمل کنترل‌های داخلی، طی سال‌های 1391 تا 1394 آزمون شد. نتایج حاصل از بررسی 121 شرکت از طریق داده‌های ترکیبی به روش تابلویی بیانگر آن است که بین استقلال و تخصص مالی کمیتۀ حسابرسی با محیط اطلاعاتی رابطۀ مثبت معناداری وجود دارد، در حالی که رابطۀ دیگر ویژگی‌های کمیتۀ حسابرسی با محیط اطلاعاتی شرکت معنادار نیست.

Keywords [Persian]

  • حاکمیت شرکتی
  • شاخص جامع محیط اطلاعاتی
  • کمیتة حسابرسی
  • محیط اطلاعاتی شرکت
  • ویژگی‌های کمیتة حسابرسی
Abbott, J. L., Parker, S., & Peters, G. F. (2004). Audit committee characteristics and restatements. Auditing: A Journal of Practice & Theory, 23(1), 69-87.
Abernathy, J. L., Beyer, B., Masli, A., & Stefaniak, C. (2014). The association between characteristics of audit committee accounting experts, audit committee chairs, and financial reporting timeliness. Advances in Accounting, Incorporating Advances in International Accounting, 30(2), 283-297.
Allen, F. (1993). Stock markets and resource allocation, in capital markets and financial intermediation, edited by C. Mayer and X. Vives, Cambridge, U.K.: Cambridge University Press, 81-108.
Altman, E. I. (2000). Predicting financial distress of firms: Revisiting the z-score and Zeta models. New york University, 7-36.
Armstrong, C., Core, J., Taylor, D., & Verrecchia, R. (2011). When does information asymmetry affect the cost of capital?. Journal of Accounting Research, 49(1), 1-40.
Armstrong, C. S., Core, J. E., & Guay, W. R. (2012). When do independent directors improve firms’ information environments?. The Wharton School, University of Pennsylvania Pub.
Attig, N., Fong, W. M., Gadhoum, Y., & Lang, L. (2006). Effects of large shareholding on information asymmetry and stock liquidity. Journal of Banking & Finance, 30(10), 2875-2892.
Azadi, K., Meshki, M., & Samipour, M. (2016). The role of audit committee independence and financial expertise on the disclosure of financial information. 1st International Conference on Management and Accounting Based on Value Creation. Retrieved from https://www.civilica.com/Paper-MAVC01-MAVC01_162.html.
Babajani, J. & khonaka, A. (2012). The necessity of formation the audit committee and the establishment of the internal audit unit in the metropolitan municipalities to improve the accountability level. Empirical Studies in Financial Accounting, 10(33), 39-72. (In Persian)
Bellver, A., & Kaufmann, D. (2005). Transparenting Transparency: Initial Empirics and Policy Applications. World Bank Policy Research, Washington, DC.
Beyer, A., Cohen, D. A., Lys, T. Z., & Walther, B. R. (2010). The financial reporting environment: Review of the recent literature. Journal of Accounting and Economics, 50(2), 296-343.
Bhagat, S., & Bolton, B. (2008). Corporate governance and firm performance. Journal of Corporate Governance, 14(3), 257-273.

Bhattacharya, N., Desai, H., & Venkataraman. K. (2013). Does earnings quality affect information asymmetry? Evidence from trading costs. Contemporary Accounting Research, 30(2), 482-516.
Cai, J., Liu, Y., Qian, Y., & Yu, M. (2015). Information asymmetry and corporate governance. Quarterly Journal of Finance, 5(3), 1-32.
Clarke, J., & shastri, K. (2000). On information asymmetry metrics. Available from http://www.ssrn.com.
Clarkson, G., Jacobsen, T. E., & Batcheller, A. L. (2007). Information asymmetry and information sharing. Government Information Quarterly, 24, 827-839.
Cormier, D., Aerts, W., Ledoux, M-J., & Magnan, M. (2009). Attributes of social and human capital disclosure and information asymmetry between managers and investors. Canadian Journal of Administrative Sciences, 26(1), 71-88.
De Vlaminck, N., & Sarens, G. (2015). The relationship between audit committee characteristics and financial statement quality: Evidence from Belgium. Journal of Management & Governance, 19(1), 145-166.
El-Mahdy, D., Hao, J., & Cong, Y. (2013). The association between audit committee characteristics and information asymmetry. Proceedings from AAA 2013: American Accounting Association Annual Meeting, Anaheim, CA.
Fakhari, H., Mohammadi, J., & Hasannataj Kordi, M. (2015). An investigation of the audit committee characteristics effects on real earnings management. Empirical Studies in Financial Accounting Quarterly, 12(46), 130-154. (In Persian)
Frank, M., & Goyal. V. (2003). Testing the Pecking Order Theory of Capital Structure. Journal of Financial Economics, 67, 217–48.
Fu, R., Kraft, A., & Zhang, H. (2012). Financial reporting frequency, information asymmetry, and the cost of equity. Journal of Accounting and Economics, 54, 132-149.
Gul, F. A., Srinidhi, B., & Ng, A. C. (2011). Does genderdiversity improve the informativeness of stock prices?. Journal of Accounting and Economics, 51(3), 314-338.
Hisham, K. M., Zuaini I., & Nor Aziah, A. M. (2014). The impact of audit committee characteristics on corporate voluntary disclosure. Proceedings from ICAS 2014: International Conference on Accounting Studies, Kual Lumpur, Malaysia.
Kanagaretnam, K., Lobo, G. J., & Whalen, D. J. (2007). Does good corporate governance reduce information asymmetry around quarterly 

26(4), 497-522.
Karamanou, I., & Vafeas, N. (2005). The association between corporate boards, audit committees, and management earnings forecasts: An empirical analysis. Journal of Accounting Research, 43, 453-486.
Kokabi, S., Kordlouie, H., & Mirabi, V. R. (2015). The impact of function efficiency of internal audit and the audit committee on financial restatements of firms. Journal of Accounting knowledge and Management Auditing, 4(16), 27-34. (In Persian)
Krasker, W. S. (1986). Stock price movements in response to stock issues under asymmetric information. Journal of Finance, 41, 93-105.
Krishnaswamis, S., & Subramaniam, V. (1999). Information Asymmetry, Valuation, and the Corporate Spin-off Decision. Journal of Financial Economics, 53(1), 73-112.
Leary, M. T., & Roberts, M. R. (2008). The Pecking order, debt capacity, and information asymmetry. Financial Economics, 95(3), 332-355.
Leuz, C. & Verrecchia, R. (2000). The economic consequences of increased disclosure. Journal of Accounting Research, 38, 91-124.
Levin, J. S., Taylor, R. J., & Chatters, L. M. (1993). Race and gender differences in religiosity among older adults: Findings from four national surveys. The Journal of Gerontology, 49(3), 137-145.
Liao, C. H. (2009). Does corporate governanc reduce information asymmetry of intangibles (Doctoral Dissertation)?. Available from http://proquest.umi.com.
Lo, A. W., Wong, R. M., & Firth, M. (2010). Can corporate governance deter management from manipulating earnings? Evidence from related-party sales transactions in China. Journal of Corporate Finance, 16, 225-235.
Makouei, A. (2007). Decision making techniques. Tehran, Mehromaheno Pub. (In Persian)
McLaughlin, R., Safieddine, A., & Vasudevan, G. K. (1998). The information content of corporate offerings of seasoned securities: An empirical analysis. Financial Management, 27(2), 31-45.
Mohd, E. (2005). Accounting for software development costs and information asymmetry. The Accounting Review, 80(4), 1211-1231.
Paprocki, C., & Stone, M. S. (2004). Is the quality of critical accounting policy disclosures lower for firms with high information asymmetry?. Available from http://papers.ssrn.com.
Petersen, C., & Plenborg, T. (2006). Voluntary disclosure and information 

asymmetry in Denmark. Journal of International Accounting, Auditing and Taxation, 15, 127-149.
Powell, M., & Anisc, D. (1997). Gender differences in risk behavior. Journal of Economic Psychology, 18(6), 605-628.
Pucheta-Martinez, M. C., & De Fuentes, C. (2007). The impact of audit committee characteristics on the enhancement of the quality of financial reporting: An empirical study in the Spanish context. Corporate Governance: An International Review, 15(6), 1394-1412.
Richardson, V. J. (2000). Information asymmetry and earnings management: Some evidence. Review of Quantitative Finance and Accounting, 15, 325-347.
Robin, A., & Wu, Q. (2015). Firm growth and the pricing of discretionary accruals. Review of Quantitative Finance and Accounting, 45(3), 1-30.
Royaie, R. A., & Ebrahimi, M. (2015). The effects of audit committee characteristics on voluntary ethics disclosure. Quarterly Financial Accounting Journal, 7(25), 71-88. (In Persian)
Siregar, S. V., & Utama, S. (2008). Type of earnings management and the effect of ownership structure, firm size, and corporate-governance practices: Evidence from Indonesia. Accounting, 43(1), 1-27.
Song, C. J., Thomas, W. B., & Yi, H. (2010). Value relevance of FAS No. 157 fair value hierarchy information and the impact of corporate governance mechanisms. The Accounting Review, 85(4), 1375-1410.
Takhtayi, N., Tamimi, M., & mousavi, Z. (2011). The role of audit committees in the quality of financial reporting. CPA, 45, 45-56. (In Persian)
Vakili Fard, H. R., Taleb Nia, Gh., & Kiani, M. (2010). Examination of relation of free float with price bubble in accepted firms at Tehran's stock exchange. Financial Enginiering and Securities Management (Portfolio Management), 1(4), 67-87. (In Persian)
Wang, M. C., Lee, M. H., & Chuang, J. J. (2016). Relations among audit committee establishment, information transparency and earnings quality: Evidence from simultaneous equation models. Quality & Quantity, 50(6), 2417-2431.
Wasan, S., & Boone, J. P. (2010). Do accruals exacerbate information asymmetry in the market?. Advances in International Accounting, 26, 66-78.
Watts, R., & Zimmerman, J. (1986). Positive Accounting Theory. Englewood Cliffs, Prentice Hall Inc.
Weick, K. E., (1969). The social psychology of organizing (1st ed.). Addison-Wesley Pub.