Are CEO Power and Audit Committee Quality Substitutes or in Conflict?

35 Pages Posted: 30 Jan 2017

Date Written: January 30, 2017

Abstract

CEO power can influence a CEO’s incentives to disclose information, in turn affecting the information environment. Audit committees can also affect the information environment, because they serve as the watchdog for financial reporting quality and the audit process. Thus, our research explores whether CEO power and the audit committee are substitute or conflicting mechanisms in improving information transparency. Our evidence supports a simultaneous inverse association between CEO power and audit committee quality. In addition, a simultaneous inverse association between CEO power and audit committee quality for firms with more complex accounting policies or in high-tech industries is significantly stronger than that of firms with less complex accounting policies or in other industries. Finally, the evidence shows that firms with more powerful CEOs experience more information transparency. Thus, powerful CEOs and an audit committee with high quality play the same role in improving information transparency. As a result, our evidence indicates that the firm’s CEO and its audit committee are substitutes for each other.

Keywords: CEO Power, Audit Committee, Corporate Governance

JEL Classification: G34, M42

Suggested Citation

Shiah-Hou, Shin-Rong and Wang, Wei-Yin, Are CEO Power and Audit Committee Quality Substitutes or in Conflict? (January 30, 2017). Asian Finance Association (AsianFA) 2017 Conference, Available at SSRN: https://ssrn.com/abstract=2908146 or http://dx.doi.org/10.2139/ssrn.2908146

Shin-Rong Shiah-Hou (Contact Author)

Yuan Ze University ( email )

135 Far-East Rd., Chung-Li 320
Taipei
Taiwan

Wei-Yin Wang

Yuan Ze University ( email )

135, Far-East Rd., Chung-Li
Taoyuan, ROC
Taiwan

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