Audit Committee Chair Succession And Financial Reporting Quality: Does Firm-Specific Knowledge Matter?

54 Pages Posted: 5 May 2021

See all articles by Linda A. Myers

Linda A. Myers

University of Tennessee, Haslam College of Business, Accounting and Information Management

Roy Schmardebeck

The University of Tennessee, Knoxville - Haslam College of Business, Accounting and Information Management

Stefan Slavov

University of Tennessee - Haslam College of Business

Date Written: May 2021

Abstract

We investigate whether new audit committee (AC) chairs provide more effective monitoring of the financial reporting process when they have firm-specific knowledge, proxied for by prior service on the firm’s AC. Consistent with practitioner and governance experts’ views on the importance of firm-specific knowledge, we find that firms are less likely to misstate their financial statements when new AC chairs previously served on the AC. This effect is stronger in the first two years of the AC chair’s succession period and when the incoming AC chair has more prior service on the AC. AC chair industry, accounting, and supervisory expertise, as well as prior experience as an AC chair at a different firm, do not compensate for a lack of firm-specific knowledge. These findings contribute to the literature on the AC chair’s role in the financial reporting process, suggesting that AC chair succession planning is important for financial reporting outcomes.

Keywords: audit committee chair, audit committee oversight, monitoring, financial reporting quality, financial statement misstatements, succession, independence, firm-specific knowledge

JEL Classification: M40, M41

Suggested Citation

Myers, Linda A. and Schmardebeck, Roy and Slavov, Stefan, Audit Committee Chair Succession And Financial Reporting Quality: Does Firm-Specific Knowledge Matter? (May 2021). Available at SSRN: https://ssrn.com/abstract=3839962 or http://dx.doi.org/10.2139/ssrn.3839962

Linda A. Myers (Contact Author)

University of Tennessee, Haslam College of Business, Accounting and Information Management ( email )

Knoxville, TN
United States

Roy Schmardebeck

The University of Tennessee, Knoxville - Haslam College of Business, Accounting and Information Management ( email )

The Boyd Center for Business and Economic Research
Knoxville, TN 37996
United States

Stefan Slavov

University of Tennessee - Haslam College of Business

Knoxville, TN
United States

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