Audit Committee Chair Succession and Financial Reporting Quality: Does Prior Audit Committee Service Matter?

51 Pages Posted: 5 May 2021 Last revised: 31 Aug 2023

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

San Diego State University

Date Written: August 2023

Abstract

Newly appointed audit committee (AC) chairs face a steep learning curve. Corporate governance experts suggest that prior service on the firm’s AC should improve AC monitoring performance but their fresh perspectives, expertise, or firm onboarding policies could allow AC chairs without prior AC service to be effective monitors. We investigate whether prior AC service impacts the monitoring performance of new AC chairs. We find that financial statement misstatements are less likely when new AC chairs have prior AC service, but AC chair industry expertise can attenuate this monitoring difference in some cases. In contrast, AC chair accounting expertise, supervisory expertise, or prior experience as an AC chair at a different firm do not compensate for a lack of prior service on the firm’s AC. These findings underscore the importance of AC chair succession planning for high quality 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 Prior Audit Committee Service Matter? (August 2023). 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 )

Knoxville, TN 37996
United States

Stefan Slavov

San Diego State University ( email )

San Diego, CA 92182-0763
United States

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