Audit Committee Network Connections and the Timeliness of Financial Reporting

Abstract

We investigate the effects of Audit Committee (AC) networks on the timeliness of financial reporting. Using a sample of 2,198 firms for the period 2002 to 2017, we find that firms led by well-connected ACs have lower audit lag, earnings announcement lag, and filing (10-K) lag. This timeliness is not traded for reporting quality and accuracy. The effect is stronger when firms have weak governance and no material control weaknesses. Interestingly, the effect of AC connectedness on timeliness is significant regardless of the intensity of demand for information, but is stronger when information demand is lower. These primary results hold even after controlling for CEO and CFO connectedness and hold only in post-Sarbanes Oxley (SOX) periods. Overall, these findings suggest that improved information environment around well-connected ACs leads to the timely dissemination of information to the market.

Keywords: Network Connections, Financial Reporting Timeliness, Audit Committees