The Wealth Effect of Announcement of Audit Committee Formation: Evidence from Malaysian Listed Firms

18 Pages Posted: 28 Sep 2004

See all articles by Zulkarnain Muhamad Sori

Zulkarnain Muhamad Sori

INCEIF, The Global University of Islamic Finance

Yusuf Karbhari

Cardiff Business School

Abstract

This study investigates the wealth effects of announcements of audit committee formation by Malaysian listed companies. Using a sample of companies that announced the formation of audit committees before, during and after the mandatory year (1994), the abnormal returns and cumulative abnormal returns were estimated to measure the wealth effect for eleven days surrounding the announcement date. Negative and significant abnormal returns and cumulative abnormal returns were observed during the five days before the announcement (including the announcement day) for all the sampled firms. The post-announcement period did not show any significant drift of abnormal returns. The negative wealth effect could be due to investors' perceived scepticism concerning the ability of firms to actually form an effectively functioning audit committee.

Keywords: Audit Committee Formation, Corporate Governance, Event Study, Malaysia, Wealth Effects.

JEL Classification: M41

Suggested Citation

Muhamad Sori, Zulkarnain and Karbhari, Yusuf, The Wealth Effect of Announcement of Audit Committee Formation: Evidence from Malaysian Listed Firms. Available at SSRN: https://ssrn.com/abstract=596181 or http://dx.doi.org/10.2139/ssrn.596181

Zulkarnain Muhamad Sori

INCEIF, The Global University of Islamic Finance ( email )

Lorong Universiti A
Kuala Lumpur, Kuala Lumpur 59100
Malaysia
+60376514173 (Phone)
8 (Fax)

HOME PAGE: http://www.inceif.org/

Yusuf Karbhari (Contact Author)

Cardiff Business School ( email )

Aberconway Building
Colum Drive
Cardiff, CF1 3EU
United Kingdom
+ 44 0 29 2087 6057 (Phone)
+ 44 0 29 2087 4419 (Fax)

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