The Even-Odd Nature of Audit Committees and Corporate Earnings Quality
43 Pages Posted: 6 Feb 2014 Last revised: 11 Dec 2015
Date Written: December 11, 2015
We apply voting theory to the context of audit committees and examine how the even-odd nature of audit committees is related to earnings quality. We hypothesize that an audit committee with an odd number of directors can improve the committee’s voting efficiency by better aggregating directors’ information and thus enhance the quality of committee decisions, as compared to an audit committee with an even number of directors. Supporting this implication, we find that an odd audit committee is associated with lower likelihood of financial restatements than an even audit committee and that this relation is stronger when the committee members have more heterogeneous opinions, hold less equity ownership, are in a smaller audit committee, and face an more entrenched management.
Keywords: Voting Efficiency, Audit Committee, Financial Restatement, Earnings Quality, Even, Odd
JEL Classification: G30, G38
Suggested Citation: Suggested Citation