Market Reaction to Voluntary Announcements of Audit Committee Appointments: The Effect of Financial Expertise

Posted: 8 Jul 2004

See all articles by Wallace N. Davidson

Wallace N. Davidson

Southern Illinois University at Carbondale - Department of Finance

Biao Xie

Southern Illinois University at Carbondale - Department of Finance

Weihong Xu

State University of New York (SUNY) - Accounting & Law

Abstract

This paper investigates stock returns surrounding the appointment of directors to audit committees. We examine 136 voluntary appointment announcements over 1990-2001. Most of the announcements are issued after year 1999 and by small, NASDAQ firms. We find significantly positive stock price reaction when new members of audit committees have financial expertise. These results are robust to control for state of audit committees prior to director appointment and for an alternative definition of financial expertise. Our evidence suggests that market rewards firms that appoint financial experts to their audit committees.

Keywords: Audit committee, Financial expertise

JEL Classification: G12, M41, M49, G34

Suggested Citation

Davidson, Wallace N. and Xie, Biao and Xu, Weihong, Market Reaction to Voluntary Announcements of Audit Committee Appointments: The Effect of Financial Expertise. Available at SSRN: https://ssrn.com/abstract=562515

Wallace N. Davidson

Southern Illinois University at Carbondale - Department of Finance ( email )

Mail Code 4626
Carbondale, IL 62901-4626
United States
618-453-1429 (Phone)
618-453-5626 (Fax)

Biao Xie

Southern Illinois University at Carbondale - Department of Finance ( email )

Mailcode 4626
Carbondale, IL 62901-4626
United States
618-453-2459 (Phone)

Weihong Xu (Contact Author)

State University of New York (SUNY) - Accounting & Law ( email )

Buffalo, NY 14260
United States
716-645-5434 (Phone)
716-645-3823 (Fax)

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