Impact of Audit Committee Social Capital and Auditor Tenure on the Adoption of COSO 2013 Framework

• In Event: Governance and Managerial Ability

Abstract

The study aims to examine the effect of Audit Committees social capital, measured using network centrality from social network theory, and auditor tenure on the adoption of COSO 2013 framework. Social capital literature suggests many positive effects of social capital or connectedness on firm outcomes. Drawing on these studies, we argue that well-connected audit committees have informational advantages, which helps them to learn more about the best practices of the industry and encourages them to adopt those practices in their own firms. We also argue that firms with longer auditor tenure are more likely to adopt COSO 2013 framework as such firms are more likely to listen to auditors’ recommendations of transitioning to an updated internal control framework because of longer working relationship, trust, and cooperation. Our results suggest that audit committees with greater social capital and longer auditor tenure are more likely to adopt COSO 2013 framework. Our results are robust to a battery of robustness tests. We add to the literature investigating audit committee characteristics and their effects on different outcomes.

Authors

• Sharif Islam, Southern Illinois University - Carbondale

• Amanuel Fekade Tadesse, University of New Orleans

• Nusrat Farah, Southern Illinois University - Carbondale

• William McCumber, Louisiana Tech University