Causes and Consequences of Variations in Audit Committee Composition

Abstract

This paper examines and finds systematic economic factors behind variations in audit committee composition. Specifically, audit committee independence is positively related to the informativeness of accounting data in valuation and negatively related to the degree of bargaining power that the CEO commands over the board. In constrast, no systematic relation is found between audit committee composition and the degree of contracting between shareholders and senior claimants. This paper also examines and finds economic benefits of firms having independent audit committees. Specifically, CEO cash compensation and the number of audit committee meetings are negatively (positively) related to audit committee independence, respectively.