Certification of Audit Committee Effectiveness: Evidence from a One-Time Regulatory Event in China

Journal of International Accounting Research, Summer 2021, Vol. 20, No. 2, pp. 1-23

51 Pages Posted: 15 Feb 2017 Last revised: 17 Sep 2021

See all articles by Hsihui Chang

Hsihui Chang

Drexel University

Xin Chen

Shanghai Jiao Tong University (SJTU) - Antai College of Economics and Management

Agnes Cheng

Hong Kong Polytechnic University; University of Oklahama

Nan Zhou

University of Cincinnati - Lindner College of Business

Date Written: February 15, 2017

Abstract

The China Securities Regulatory Commission (CSRC) launched the Campaign for Strengthening Corporate Governance of Public Companies in 2007. As part of this pilot program, public firms were required to report to the CSRC whether their boards had established audit committees and whether these audit committees operated effectively. Using this unique one-time regulatory event in China, we examine whether it is informative for firms to certify the effectiveness of their audit committees. Through analyzing hand-collected data from the campaign reports filed with the CSRC, we find that firms with certified audit committee effectiveness are associated with less earnings management and are less likely to have modified audit opinions and delayed filings. Thus, our findings suggest that certification of audit committee effectiveness provides a firm an opportunity to credibly signal that its audit committee functions in substance rather than in appearance.

Keywords: Audit committee effectiveness; Certification; Earnings management; Audit opinions; Delayed filings

JEL Classification: M41; M42; M48

Suggested Citation

Chang, Hsihui and Chen, Xin and Cheng, Agnes and Zhou, Nan, Certification of Audit Committee Effectiveness: Evidence from a One-Time Regulatory Event in China (February 15, 2017). Journal of International Accounting Research, Summer 2021, Vol. 20, No. 2, pp. 1-23, Available at SSRN: https://ssrn.com/abstract=2917356 or http://dx.doi.org/10.2139/ssrn.2917356

Hsihui Chang

Drexel University ( email )

3141 Chestnut St
Philadelphia, PA 19104
United States

Xin Chen

Shanghai Jiao Tong University (SJTU) - Antai College of Economics and Management ( email )

No.535 Fahuazhen Road
Shanghai Jiao Tong University
Shanghai, Shanghai 200052
China

Agnes Cheng

Hong Kong Polytechnic University ( email )

11 Yuk Choi Rd
Hung Hom
Hong Kong

University of Oklahama ( email )

307 West Brooks
Norman, OK 73019-4004
United States

Nan Zhou (Contact Author)

University of Cincinnati - Lindner College of Business ( email )

P.O. Box 210211
Cincinnati, OH 45221-0211
United States

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