Certification of Audit Committee Effectiveness: Evidence from a One-Time Regulatory Event in China
Journal of International Accounting Research, Summer 2021, Vol. 20, No. 2, pp. 1-23
51 Pages Posted: 15 Feb 2017 Last revised: 17 Sep 2021
Date Written: February 15, 2017
Abstract
The China Securities Regulatory Commission (CSRC) launched the Campaign for Strengthening Corporate Governance of Public Companies in 2007. As part of this pilot program, public firms were required to report to the CSRC whether their boards had established audit committees and whether these audit committees operated effectively. Using this unique one-time regulatory event in China, we examine whether it is informative for firms to certify the effectiveness of their audit committees. Through analyzing hand-collected data from the campaign reports filed with the CSRC, we find that firms with certified audit committee effectiveness are associated with less earnings management and are less likely to have modified audit opinions and delayed filings. Thus, our findings suggest that certification of audit committee effectiveness provides a firm an opportunity to credibly signal that its audit committee functions in substance rather than in appearance.
Keywords: Audit committee effectiveness; Certification; Earnings management; Audit opinions; Delayed filings
JEL Classification: M41; M42; M48
Suggested Citation: Suggested Citation