Articlegreen2004

The existence and independence of audit committees in France

85 citations0/0 files storedAccounting and Business Research

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Auditing, Earnings Management, Governance Corporate Finance and Governance Corporate Governance and Financial Management

Abstract

This paper uses an agency theory framework to investigate the determinants of audit committees in France. Empirical tests address a cross-sectional sample of 285 listed companies for the fiscal year 1997, which is two years after the first Viénot report recommending the creation of audit committees among listed companies. Multivariate analyses show that the existence of an audit committee, and the committee's independence, are both negatively correlated with insider ownership, consistent with the owner-manager agency theory that considers audit committees as devices aimed at strengthening the monitoring system, the quality of financial reporting and the whole corporate governance environment. The existence of an audit committee that complies with corporate governance recommendations (i.e., a minimum of three directors, all of whom are non-executive directors) also positively depends on leverage if the firm has a high-IOS (Investment Opportunity Set). The quality of accounting numbers thus seems important in shareholder-debtholder relationships if lenders are potentially more exposed to default risk and expropriation mechanisms. However, this result might be sensitive to the IOS measurement and classification of high- and low-IOS companies. Finally, the presence of an audit committee is found to be positively correlated with board size, firm size, auditor reputation, and with the diversity of the company's operations.

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References

1976Theory of the firm: Managerial behavior, agency costs and ownership structure 1977Determinants of corporate borrowing 1980Agency Problems and the Theory of the Firm 2002Audit committee, board of director characteristics, and earnings management 1996Causes and Consequences of Earnings Manipulation: An Analysis of Firms Subject to Enforcement Actions by the SEC*1992The investment opportunity set and corporate financing, dividend, and compensation policies 1980The Pricing of Audit Services: Theory and Evidence 2003Earnings management and corporate governance: the role of the board and the audit committee

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2011The Determinants of Audit Committee Independence and Activity: Evidence from the UK 2007Corporate Governance Reform and the Cost of Debt Financing of Listed French Companies 2020Gender diversity in the audit committee and the efficiency of internal control and financial reporting quality 2005Audit Quality and Earnings Management in France 2020Audit committee versus other governance mechanisms and the effect of investment opportunities: evidence from Palestine

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