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Audit Committee Expertise and Financial Analysts’ and Investors’ Ability to Anticipate Future Earnings

59 Pages Posted: 12 Oct 2011  

John L. Abernathy

University of North Texas - Department of Accounting; Kennesaw State University

Tony Kang

McMaster University - DeGroote School of Business

Gopal V. Krishnan

Bentley University

Date Written: October 11, 2011

Abstract

One of the important attributes of high quality accounting information is its ability to aid financial statement users in forming expectations about the firm’s future earnings. Prior research finds that accounting financial expertise of the audit committee is associated with higher financial reporting quality. We extend the literature by examining the association between audit committee expertise and security analysts’ and investors’ ability to anticipate future earnings. We find that analyst earnings forecasts of firms with an audit committee member with accounting financial expertise are more accurate and less dispersed. These associations tend to be stronger in weaker governance firms. We also find that audit committee expertise is associated with a more informative stock price for firms weaker governance. We do not find a significant association between non-accounting financial expertise and attributes of analysts’ forecasts or earnings informativeness. These findings contribute to our understanding of the role of accounting expertise in audit committees.

Keywords: Audit committees, Financial expertise, Analyst Forecasts, Corporate governance, Financial reporting quality

Suggested Citation

Abernathy, John L. and Kang, Tony and Krishnan, Gopal V., Audit Committee Expertise and Financial Analysts’ and Investors’ Ability to Anticipate Future Earnings (October 11, 2011). Available at SSRN: https://ssrn.com/abstract=1942928 or http://dx.doi.org/10.2139/ssrn.1942928

John L. Abernathy (Contact Author)

University of North Texas - Department of Accounting ( email )

College of Business Administration
P.O. Box 305219
Denton, TX 76203
United States

Kennesaw State University ( email )

1000 Chastain Road
Kennesaw, GA 30144
United States

Tony Kang

McMaster University - DeGroote School of Business ( email )

1280 Main Street West
Hamilton, ON L8S 4M4
Canada
905-525-9140 x23846 (Phone)
905-521-8995 (Fax)

HOME PAGE: http://www.degroote.mcmaster.ca/profiles/tony-kang/

Gopal Krishnan

Bentley University ( email )

175 Forest Street
Waltham, MA 02452
United States
781-891-2477 (Phone)

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