Factors Associated with the Development of Board Sub-Committees
15 Pages Posted: 18 Mar 2003
This study examines the factors associated with the presence of board sub-committees, specifically audit, remuneration and nomination committees. Factors which are hypothesised in this study to affect sub-committee presence are Big 6 auditors, non-executive directors, non-executive chairmen, number of intercorporate relationships of the board and shareholder type. Company size, number of board members and leverage are employed as control variables as suggested by earlier research.
An analysis of board subcommittees in the Australian corporate environment is relevant to other jurisdictions as there are no mandatory requirements on either board composition or board sub-committees. There is, however, a mandatory requirement to disclose corporate governance practices which allows for a study of this type to be reliably conducted. A sample of 361 Australian companies drawn from the largest 500 public companies is employed.
Audit committee presence is found to be positively associated with Big 6 auditors and the number of intercorporate relationships of the directors of the board. Remuneration committees are also found to be associated with Big 6 auditors and intercorporate relationships and also higher levels of institutional investment. The presence of nomination committees is not associated with auditors, directors or investors, but is associated with board size and leverage. The study concludes that audit committees are a highly developed and mature governance mechanism, and that remuneration committees can be classed as a developing and maturing structure whilst nomination committees are relatively immature.
Keywords: Audit Committees, Remuneration Committees, Nomination Committees, Intercorporate Relationships
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