Voluntary Audit Committee Formation and Agency Costs
30 Pages Posted: 3 Jan 2007
Date Written: December 2006
Abstract
This paper finds that only a small proportion of listed companies in Hong Kong voluntarily establish audit committees prior to the implementation of the revised Code of Best Practice, which effectively mandated them. We show that firms with dispersed share ownership, a greater proportion of outside directors, and that have a non-Big 5 auditor are associated with the voluntary adoption of audit committees. The latter result differs from other studies and it suggests audit committees are a substitute mechanism for the employment of high quality auditors (using the Big 5 as a proxy for high quality).
Keywords: Audit committee, Agency costs, Audit quality substitution effect
JEL Classification: G34, M49, G32
Suggested Citation: Suggested Citation
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