The Role of the Audit Committee and the Informativeness of Accounting Earnings in East Asia

57 Pages Posted: 14 Nov 2017

See all articles by Tracie Woidtke

Tracie Woidtke

University of Tennessee, Haslam College of Business

Yin‐Hua Yeh

National Chiao-Tung University

Date Written: October 10, 2012


Policy makers around the world have focused on corporate governance reform since the Asian financial crisis and scandals in the United States such as the Enron debacle. In particular, policy makers have focused on the establishment of independent audit committees to improve investor confidence in reported accounting information. In a sample of East Asian companies, we find that the negative relation between concentrated control and earnings informativeness that was documented prior to the Asian financial crisis persists in a more recent period, even though many corporate governance reforms have been adopted since the crisis to improve financial disclosure. We do, however, find that earnings informativeness is strengthened by both fully independent audit committees and audit committees with a majority of independent directors with accounting financial or legal expertise. In addition, the increased reliability that is associated with these audit committee characteristics appears to more than offset the detrimental effect that is associated with concentrated control. The results in this paper suggest that an emphasis on audit committee independence alone may not be enough to enhance earnings informativeness. Instead, focusing on both complete independence and the financial or legal expertise of independent directors who are appointed to the audit committee may be a more fruitful way to increase investor confidence in accounting information, especially when ownership is concentrated.

Keywords: Corporate governance, Ownership, Earnings informativeness, Audit committee

JEL Classification: G34, G32

Suggested Citation

Woidtke, Tracie and Yeh, Yin‐Hua, The Role of the Audit Committee and the Informativeness of Accounting Earnings in East Asia (October 10, 2012). Pacific-Basin Finance Journal, Vol. 23, (2013) 1-24, Available at SSRN:

Tracie Woidtke (Contact Author)

University of Tennessee, Haslam College of Business ( email )

428 Stokely Management Center
Knoxville, TN Tennessee 37996-0540
United States
865-974-1718 (Phone)
865-974-1716 (Fax)

Yin‐Hua Yeh

National Chiao-Tung University ( email )

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