Audit Committee Chair Incentives to Use Voluntary Disclosure in the Audit Committee Report under High Agency Conflicts

• In Event: Compensation Contracts, Audit Fees, and Audit Committees

Abstract

This study considers whether there is an association between the agency incentives of the audit committee chair and voluntary disclosure in the audit committee report. Prior audit committee report research suggests that a shift toward greater voluntary disclosure occurred after the passage of the Sarbanes-Oxley Act (Pandit et al. 2006). Using agency theory and signaling theory, this study considers two incentives for voluntary disclosure for audit committees to signal their monitoring activity to shareholders: their reputation and their compensation structure. Studying a high litigation industry, this study provides evidence that reputation incentive of the audit committee chair is associated wtih greater voluntary disclosure when agency conflicts are high. This study contributes to the literature by studying voluntary disclosure in a non-traditional setting and providing evidence that audit committees may use their report to signal their unobservable monitoring effort.

Author

• Matthew Reidenbach, Pace University