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The Role of Firm Status in Appointments of Financial Experts to Audit Committees

50 Pages Posted: 14 Oct 2011 Last revised: 26 May 2012

David H. Erkens

Georgetown University - Robert Emmett McDonough School of Business

Sarah E. Bonner

University of Southern California

Date Written: May 23, 2012

Abstract

Since 1999 regulators have attempted to improve the monitoring of financial reporting by exerting significant pressure on firms to appoint accounting financial experts (AFEs) to their audit committees. Yet, many firms have been reluctant to do so, which has made these firms more prone to financial reporting problems. We examine appointments of AFEs to the audit committees of S&P 1500 firms during the period 1999-2008 to explore whether concerns about the status of these experts discouraged firms from appointing them. We find that typical AFEs (CFOs and retired audit partners) have lower director status (board seats, trusteeships, social club memberships, and elite education) than other types of directors, and that this status gap is greater for higher status firms (larger, better connected, and more admired firms). Moreover, we find that higher status firms are less likely to appoint AFEs, suggesting that status-related concerns reduce the demand for accounting financial expertise on audit committees.

Keywords: audit committees, financial experts, firm status, director status

JEL Classification: M41, G38

Suggested Citation

Erkens, David H. and Bonner, Sarah E., The Role of Firm Status in Appointments of Financial Experts to Audit Committees (May 23, 2012). Accounting Review, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1943648 or http://dx.doi.org/10.2139/ssrn.1943648

David Erkens (Contact Author)

Georgetown University - Robert Emmett McDonough School of Business ( email )

3700 O Street, NW
Washington, DC 20057
United States

Sarah Bonner

University of Southern California ( email )

Marshall School of Business
Los Angeles, CA 90089-0441
United States
213-740-5025 (Phone)
213-747-2815 (Fax)

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