Social Diversity of Audit Committees and Firms’ Financial Reporting Quality

50 Pages Posted: 25 Mar 2020

See all articles by Robert Felix

Robert Felix

University of Baltimore

Mikhail Pevzner

University of Baltimore - Merrick School of Business

Mengxin Zhao

Securities and Exchange Commission (SEC)

Date Written: December 29, 2019

Abstract

We examine the effect of audit committee social diversity on financial reporting quality, as measured through gender, age, and/or ethnic diversity. Considering these dimensions simultaneously, we find that only ethnic diversity is associated with a lower likelihood of financial statement misstatements. Our results are driven by firms operating in more complex environments, which suggests that audit committee ethnic diversity may be particularly important when the firm is inherently complex. We also find that ethnic diversity is associated with a lower likelihood of misstatements for companies with more powerful CEOs and when the audit committee’s financial expertise is stronger, which suggests ethnic diversity enhances audit committee effectiveness in these situations. Our study highlights the importance of ethnic diversity in audit committee performance, a crucial component of the current debate on corporate board diversity.

Keywords: Audit Committee, Culture, Diversity, Accounting Quality

JEL Classification: M40, M41

Suggested Citation

Felix, Robert and Pevzner, Mikhail and Zhao, Mengxin, Social Diversity of Audit Committees and Firms’ Financial Reporting Quality (December 29, 2019). Available at SSRN: https://ssrn.com/abstract=3546182 or http://dx.doi.org/10.2139/ssrn.3546182

Robert Felix

University of Baltimore ( email )

1420 N. Charles Street
Baltimore, MD 21201
United States

Mikhail Pevzner (Contact Author)

University of Baltimore - Merrick School of Business ( email )

1420 N. Charles St.
Baltimore, MD 21201-5779
United States

Mengxin Zhao

Securities and Exchange Commission (SEC) ( email )

450 Fifth Street, NW
Washington, DC 20549-1105
United States

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