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Compliance and value relevance of audit committees: evidence from Hong Kong

Compliance and value relevance of audit committees: evidence from Hong Kong Purpose – Audit committees (ACs) have been perceived as an important means of corporate governance, safeguarding the interests of shareholders by monitoring internal control and risk management. This study aims to examine specific structural and operational characteristics of ACs for firms in Hong Kong, where regulators have strived to adhere to international compliance standards. Design/methodology/approach – This study is based on a cross‐sectional examination of disclosures on ACs by 223 listed companies in Hong Kong. Findings – The independence and financial expertise of AC members do not enhance the value of the respective firms, despite maintaining satisfactory compliance. The discrepancy in the value relevance of ACs in prior studies is explained by the possible inadequacy of the resources available to ACs. Research limitations/implications – The data in this study are entirely from secondary sources of disclosures by listed companies for the year immediately following the implementation of the code of best practices of corporate governance. No in‐depth case studies are supplemented. Practical implications – A key implication of this study to the regulators is that the proper allocation of resources to an AC should be considered beyond the independence and financial expertise of AC members to ensure the effectiveness of an AC. Originality/value – This paper is an empirical study about the practices and compliance of ACs among listed companies in a global financial centre. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Financial Reporting and Accounting Emerald Publishing

Compliance and value relevance of audit committees: evidence from Hong Kong

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Publisher
Emerald Publishing
Copyright
Copyright © 2011 Emerald Group Publishing Limited. All rights reserved.
ISSN
1985-2517
DOI
10.1108/19852511111139813
Publisher site
See Article on Publisher Site

Abstract

Purpose – Audit committees (ACs) have been perceived as an important means of corporate governance, safeguarding the interests of shareholders by monitoring internal control and risk management. This study aims to examine specific structural and operational characteristics of ACs for firms in Hong Kong, where regulators have strived to adhere to international compliance standards. Design/methodology/approach – This study is based on a cross‐sectional examination of disclosures on ACs by 223 listed companies in Hong Kong. Findings – The independence and financial expertise of AC members do not enhance the value of the respective firms, despite maintaining satisfactory compliance. The discrepancy in the value relevance of ACs in prior studies is explained by the possible inadequacy of the resources available to ACs. Research limitations/implications – The data in this study are entirely from secondary sources of disclosures by listed companies for the year immediately following the implementation of the code of best practices of corporate governance. No in‐depth case studies are supplemented. Practical implications – A key implication of this study to the regulators is that the proper allocation of resources to an AC should be considered beyond the independence and financial expertise of AC members to ensure the effectiveness of an AC. Originality/value – This paper is an empirical study about the practices and compliance of ACs among listed companies in a global financial centre.

Journal

Journal of Financial Reporting and Accounting – Emerald Publishing

Published: Jul 5, 2011

Keywords: Corporate governance; Audit committee; Value relevance; Hong Kong; Internal control compliance; Risk management

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