Board ownership, audit committees' effectiveness and corporate voluntary disclosures

Abstract

Purpose The aim of this paper is to examine the linkages between board ownership, audit committees' effectiveness in terms of the proportion of independent non‐executive directors (INED) and expert members on the audit committee and corporate voluntary disclosures. Design/methodology/approach The paper is based on a sample of 124 public listed companies in Malaysia for studying differences in corporate governance characteristics which affect the financial disclosure. Findings The empirical results indicate that that board ownership is associated with lower levels of voluntary disclosures. The result is consistent with the notion that board ownership increases agency costs resulting from information asymmetry between firm management and outsider investors. The negative relationship between board ownership and corporate voluntary disclosure is, however, weaker for firms with higher proportion of INED on the audit committee indicating that INED moderate board ownership/corporate voluntary disclosure relationship. Overall, the findings lend support for firms with a higher level of board ownership to include more independent directors on the audit committee to increase disclosure levels and reduce information asymmetry between firm management and investors. Originality/value This paper demonstrates the usefulness of corporate governance factors mainly board ownership and effective audit committee on financial reporting practices. It is expected that this research will have important policy implication to reduce information asymmetry and improves corporate governance.

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