Articlegreen2021

Audit committee diversity and corporate scandals: evidence from the UK

57 citations0/0 files storedInternational Journal of Accounting and Information Management

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

Abstract

Purpose This paper aims to empirically analyse specific characteristics of an audit committee that could be associated with the likelihood of corporate fraud/scandal/sanctions. Design/methodology/approach The sample includes all firms that were investigated by the Financial Reporting Council through the audit enforcement procedure from 2014 to 2019, and two matched no-scandal firms. It uses logistic binary regression analysis to examine the hypotheses. Findings Results based on the logit regression suggest that audit member tenure and audit committee meeting frequency both have positive associations to the likelihood of corporate scandal. Complementing this result, the authors find negative but insignificant relationships amongst audit committee female chair, audit committee female members percentage, audit committee qualified accountants members, audit committee attendance, number of shares held by audit committee members, audit committee remuneration, board tenure and the likelihood of corporate scandal across the sample. Research limitations/implications The results should help regulatory policymakers make decisions, which could be crucial to future corporate governance. Additionally, these results should be useful to investors who use corporate governance as criteria for investment decisions. Originality/value The authors extend, as well as contribute to the growing literature on the audit committee, and therefore, wider corporate governance literature and provide originality in that it is the first, to the knowledge, to consider two characteristics (i.e. remuneration and gender) in a UK context of corporate scandal. Also, the results imply that the structure and diversity of the audit committee affect corporate fraud/scandal/sanctions.

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References

2002Audit committee, board of director characteristics, and earnings management 1980The Case for Qualitative Research 2004Audit Committee Characteristics and Restatements 2005Corporate Governance and Accounting Scandals 2004The Effect of Audit Committee Expertise, Independence, and Activity on Aggressive Earnings Management 2005Restoring Trust after Fraud: Does Corporate Governance Matter?2005Audit Committee Quality and Internal Control: An Empirical Analysis 2005Consequences of Financial Reporting Failure for Outside Directors: Evidence from Accounting Restatements and Audit Committee Members

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