The Association between Audit Committee Characteristics and Asymmetric Information

• In Event: Financial Accounting and Reporting 8

Abstract

We examine the association between audit committee expertise and independence and asymmetric information in the U.S. equity market. Using precise private information, which is extracted from the decomposed bid-ask spread, we find consistent and strong evidence that 100% independence of audit committee members is directly and significantly contribute to lessening information asymmetry between informed and uninformed traders in the U.S. equity market. Likewise, we find that the existence of audit committee with financial expertise reduces information symmetry. Our results are remarkably robust even after using a wide array of market-microstructure measures of asymmetric information such as quoted spread, effective spread, price impact, and the probability of informed trade and after controlling for firm-specific characteristics as well as market-liquidity measures.

Authors

• Yu Cong, Morgan State University

• Dina F Elmahdy, Morgan State University

• Jia Hao, Wayne State University