“Evidence on Audit Committee and Firm Value: A Cross-sectional Analysis” by Joanne LI
Loyola College in Maryland
Kam C. CHAN
Western Kentucky University
Major recommendations urge for audit committee independence and finance expertise. We examine the specifics of audit committee and its relation with firm value using a sample of Fortune 200 companies in the year of 2000. Based on hand-collected information on a sample of 2,145 directors, we find that independence exists in audit committees in our sample. Also, we study if existing finance expertise within the audit committee has any relation with firm value. After controlling for firm financial specifics, board feature, and individual director characteristics and account for interaction among these variables, we find that the presence of independent directors who are top management of other publicly traded firms, in the audit committee enhances the value of a firm. Also, our findings indicate that directors, who simultaneously serve on all three important committees, audit, nominating, and compensation, tend to be associated with higher firm value. However, we find neither directors with finance-background nor such directors on audit committee has any relation with firm value. Finally, CEOs also acting as chairmen of the board have significant negative impact on firm value.