Articlegreen2007

Voluntary audit committee formation and agency costs

24 citations0/0 files storedInternational Journal of Accounting Auditing and Performance Evaluation

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

Abstract

This paper finds that only a small proportion of listed companies in Hong Kong voluntarily establish audit committees prior to the implementation of the revised Code of Best Practice, which effectively mandated them. We show that firms with dispersed ownership, a greater proportion of outside directors, and that have a non-Big Five auditor, are associated with the voluntary adoption of audit committees. The latter result differs from other studies and it suggests that audit committees are a substitute mechanism for the employment of high quality auditors (using the Big Five as a proxy for high quality).

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References

1976Theory of the firm: Managerial behavior, agency costs and ownership structure 1983Separation of Ownership and Control 1996Production, Information Costs and Economic Organization 1986Large Shareholders and Corporate Control 1933The Modern Corporation and Private Property 1981Auditor size and audit quality 2000The separation of ownership and control in East Asian Corporations 1999Corporate governance, chief executive officer compensation, and firm performance

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2012Audit Committee Mechanism to Improve Corporate Governance: Evidence from a Developing Country 2018Audit Committees and Managerial Influence on Audit Quality: ‘Voluntary’ versus ‘Mandatory’ Approach to Corporate Governance 2021Voluntary audit committees, auditor selection and audit quality: evidence from Taiwan 2012Corporate governance through an audit committee: an empirical study 2011Determinants of Voluntary Audit Committee Formation in a Two-Tier Board System of a Post-transitional Economy – The Case of Slovenia

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