AAA Spark Meeting of the Regions

Audit Committee Characteristics and Environmental, Social, and Governance (ESG) Disclosure Quantity

• In Event: Environmental Disclosures

Abstract

Audit committee (AC) members play an essential role in overseeing the company’s evolving risks around ESG activities as investors and other stakeholders increase their focus on these activities. This paper examines the association between aggregate and individual Environmental, Social, and Governance (ESG) disclosure quantity scores and AC personal characteristics and structure. We find empirical evidence supporting a positive association between ESG quantity scores and AC size, tenure, the number of females on the AC board, AC busyness, and the number of meetings. We also find a negative association between ESG quantity scores and the number of shares owned by board members. We further examine whether the association between ESG quantitative measures and audit committee characteristics is driven by factors such as managerial abilities or external monitoring mechanisms such as analysts following or institutional investors. We find that the effect of audit committee expertise is observable for the individual factors of ESG, the "E" and "S” among firms with high institutional investors. Interestingly, the number of audit committee meetings is only positive and significantly associated with ESG scores among firms with low institutional investors. We also find a significant association between ESG scores and audit committee expertise and the number of meetings among firms with low analyst following. Overall, our findings suggest that AC committee characteristics influence ESG quantity metrics.

Authors

• Kimberly Walker, Virginia Polytechnic Institute and State University

• Dina F. El Mahdy, Morgan State University