Audit Committee and Firm Value: Evidence on Outside Top Executives as Expert-Independent Directors

Authors

  • Kam C. Chan,

    Corresponding author
    1. Department of Accounting and Finance, Gordon Ford College of Business, Western Kentucky University, Bowling Green
      *Department of Accounting and Finance, Gordon Ford College of Business, Western Kentucky University, Bowling Green, KY 42101. Tel: (270) 745–2977; E-mail: Johnny.chan@wku.edu
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  • Joanne Li

    1. Department of Accounting and Finance, Gordon Ford College of Business, Western Kentucky University, Bowling Green
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*Department of Accounting and Finance, Gordon Ford College of Business, Western Kentucky University, Bowling Green, KY 42101. Tel: (270) 745–2977; E-mail: Johnny.chan@wku.edu

ABSTRACT

Manuscript Type: Empirical

Research Question/Issue: We examine the relation between independence of audit committee and firm value with a sample of Fortune 200 companies.

Research Findings/Insights: Using a sample of Fortune 200 companies and defining top executives of other publicly traded firms as expert-independent directors and controlling for firm specifics, board features, and individual director characteristics, we find the presence of expert-independent directors on board and in the audit committee enhances firm value.

Theoretical/Academic Implications: We provide empirical evidence to show that by focusing on this restricted definition of independent directors (expert-independent directors), we are able to examine independence in both the board and audit committee in a different light.

Practitioner/Policy Implications: We offer new insights to relate firm value of the composition of audit committee. When expert-independent directors are of majority control of audit committee, finance-trained directors improve firm value almost five times to that of firms with independent audit committee alone.

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