Journal article
Does overlapping membership on audit and compensation committees improve a firm's financial reporting quality?
Review of accounting & finance, v 11(2), pp 141-165
01 Jan 2012
Abstract
Purpose - The purpose of this paper is to examine whether audit committee members of the board prove to be better monitors if they are also on the compensation committee, as they would be more attuned to compensation related earnings management incentives.
Design/methodology/approach - The paper uses archival data on a sample of nonfinancial S&P 500 firms representing 1,032 firm years over the period 2003-2005, and discretionary accruals as a proxy for financial reporting quality.
Findings - Firms with overlapping audit and compensation committees have higher financial reporting quality than those without such overlap. In addition, there is an inverted U-shaped relationship between overlapping magnitude and financial reporting quality, suggesting that there are costs as well as benefits to overlapping committees.
Practical implications - The findings on this paper have implications for recent policy deliberations on the composition of board committees in general and audit committees in particular, as they clarify the benefits of overlapping committee members.
Originality/value - Understanding the costs and benefits of the board committee structure is particularly important as boards typically operate through the use of committees. This paper contributes to this area by considering the effect of overlapping memberships on two of the most active and important board committees - the compensation and audit committees - on the monitoring effectiveness of the audit committee.
Metrics
Details
- Title
- Does overlapping membership on audit and compensation committees improve a firm's financial reporting quality?
- Creators
- Nandini Chandar - Rider UniversityHsihui Chang - Drexel UniversityXiaochuan Zheng - Bryant University
- Publication Details
- Review of accounting & finance, v 11(2), pp 141-165
- Publisher
- Emerald Group Publishing
- Number of pages
- 26
- Resource Type
- Journal article
- Language
- English
- Academic Unit
- Accounting
- Web of Science ID
- WOS:000212418000002
- Scopus ID
- 2-s2.0-84862093088
- Other Identifier
- 991019168021404721
InCites Highlights
Data related to this publication, from InCites Benchmarking & Analytics tool:
- Collaboration types
- Domestic collaboration
- Web of Science research areas
- Business, Finance