Audit Committee Financial Literacy: A Work in Progress

27 Pages Posted: 8 Mar 2005

See all articles by Roman L. Weil

Roman L. Weil

University of Chicago - Accounting; Princeton University, Dept of Economics; UC San Diego Rady School of Management

Douglas J. Coates

Independent

M. Laurentius Marais

William E. Wecker Associates, Inc.

Date Written: March 11, 2005

Abstract

We develop a classification to score the potential of corporate audit committees to be financially literate, as defined in this paper, based on listing requirements of the NYSE, promulgated late in 1999. We score audit committees of approximately 300 large companies in 2000 and 2004, and of a subsample in 1996 as well. We find that scores did not change between 1996 and 2000, but have improved significantly since. Still, the audit committees have room for improved financial literacy in the sense that we define. Finally, we find evidence of superior stock market returns to companies who have improved the potential for financial literacy, as we measure it, of their audit committees over the last four years. The improvers in our sample enjoyed annualized abnormal, excess returns of 4.6 percent per year more than those which did not improve.

Keywords: financial literacy, accounting literacy, corporate audit committee, stock returns, corporate governance

JEL Classification: M41, M49, G34, G38

Suggested Citation

Weil, Roman L. and Coates, Douglas J. and Marais, M. Laurentius, Audit Committee Financial Literacy: A Work in Progress (March 11, 2005). CRSP Working Paper No. 605. Available at SSRN: https://ssrn.com/abstract=680281 or http://dx.doi.org/10.2139/ssrn.680281

Roman L. Weil (Contact Author)

University of Chicago - Accounting ( email )

1101 East 58th Street
Chicago, IL 60637-1561
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773-702-7261 (Phone)
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Princeton University, Dept of Economics ( email )

Princeton, NJ 08544-1021
United States
3124937156 (Phone)
3124937156 (Fax)

UC San Diego Rady School of Management ( email )

9500 Gilman Drive
Mail Code 0502
La Jolla, CA 92093-0112
United States

Douglas J. Coates

Independent ( email )

No Address Available

M. Laurentius Marais

William E. Wecker Associates, Inc. ( email )

505 San Marin Drive
Novato, CA 94945
United States

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