Audit Committee Chair Succession and Financial Reporting Quality

• In Event: Audit Committees

Abstract

In this study, we investigate whether audit committee (AC) chair succession and firm-specific experience impact financial reporting quality. We find that firms are less likely to misstate their financial statements when AC chairs are in the first three years of their tenure, suggesting that AC chair renewal is associated with an increase in monitoring. Importantly, we find that this effect is limited to AC chairs who serve on the board prior to assuming the AC chair role. This suggests that AC chair firm-specific experience is an important determinant of AC monitoring. In additional analyses, we find that AC chairs with short or long prior board service improve financial reporting quality relative to AC chairs without board service during the succession period. This supports the view that board service prior to AC chair service is beneficial, however results suggest that lengthy board service is not more beneficial than short board service. These findings should be of interest to boards of directors, external auditors, and other parties interested in corporate governance because they provide new evidence on the characteristics of AC chairs that result in improved financial reporting quality.

Authors

• Linda A. Myers, University of Tennessee-Knoxville

• Roy Schmardebeck, The University of Tennessee, Knoxville

• Stefan Slavov, University of Tennessee-Knoxville