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

46 Pages Posted: 15 Feb 2017

See all articles by Hsihui Chang

Hsihui Chang

Drexel University

Xin Chen

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

C.S. Agnes Cheng

Hong Kong Polytechnic University - School of Accounting and Finance

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 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 beneficial for firms to certify the effectiveness of their audit committees. Through analyzing hand-collected data from the campaign reports filed with CSRC, we find that firms with certified audit committee effectiveness are associated with less earnings management and lower audit fees, and are less likely to have modified audit opinions and delayed filings. This positive association implies that certification can be an effective way to ensure that audit committees function in substance rather than in appearance, as intended by the Blue Ribbon Committee reports and subsequent audit committee regulations.

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

JEL Classification: M42; L51

Suggested Citation

Chang, Hsihui and Chen, Xin and Cheng, C.S. Agnes and Zhou, Nan, Certification of Audit Committee Effectiveness: Evidence from a One-Time Regulatory Event in China (February 15, 2017). 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

C.S. Agnes Cheng

Hong Kong Polytechnic University - School of Accounting and Finance ( email )

M715, Li Ka Shing Tower
Hung Hom, Kowloon, Kowloon
Hong Kong

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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