When Replacing an Audit Committee Member, Does Financial Expertise Matter to Investors?

• In Event: Auditing, Audit Quality, and Materiality

Abstract

This research addresses whether audit committee financial expertise matters when making investing decisions. The study uses an experimental approach involving a 2 x 2 between subjects design. Results indicate that investing decisions are affected by whether a company’s audit committee has a member with financial expertise. Additionally, some evidence indicated that replacing a nonfinancial audit committee member with a financial expert appears to send a positive signal to investors. Conversely, replacing a financial expert with a nonfinancial audit committee member sends a negative signal to investors. Finally, there is no evidence that investors view the loss of a financial expert on the audit committee as different from not having had a financial expert to begin with.

Author

• Arnold Schneider, Georgia Institute of Technology