The Effect of Audit Committee Chair Characteristics in Earnings Management: Evidence from the UK

Abstract

characteristics on earnings management. Previous studies have paid little attention to the audit committee chair characteristics and their effect on earnings management. The audit committee chair’s role is significantly essential to increase the ability of the audit committee to carry out their responsibilities effectively and drive the work of the audit committee (Ghafran & Yasmin, 2018). The audit committee chair has a greater responsibility than other members in the audit committee regarding the failure of the financial report (Ghafran & Yasmin, 2018). Thus, the chair of the audit committee plays a significant role in influencing the quality of financial reporting. However, previous audit committee researches do not distinguish the audit committee chair’s characteristics from other audit committee members. Thus, this study goes further to highlight the audit committee chair using a sample selected from the FTSE 350 firms listed on the London Stock Exchange over the period 2005 - 2015. This study measures earnings management using accrual based, the results show that audit committee chair age, social networking and industry are positively associated with earnings management. However, audit committee chair tenure, pre-tenure, education, non-foreign and accounting and finance expertise have significant adverse effects on the level of earnings management.

These findings consequently contribute to existing literature and policymaking by enabling the UK and other countries that have a similar environment to make better decisions regarding the audit committee. For example, a policymaker can consider the characteristics of the audit committee when issuing regulations regarding audit committee to improve the effectiveness of this committee and thereby, firms’ financial reporting.