Andrew J. Felo

Audit Committee Characteristics and the Perceived Quality of Financial Reporting: An Empirical Analysis

In this paper, we empirically examine the relationship between two audit committee characteristics - the composition (expertise and independence) and size of the audit committee - and the quality of financial reporting. We show that after controlling for firm size, board composition, a measure of managements commitment to transparency (the existence of an ethics program) and institutional ownership, the percentage of audit committee members having expertise in accounting or financial management is positively related to financial reporting quality. We also find some evidence of a positive relationship between the size of the audit committee and financial reporting quality. However, audit committee independence is not related to financial reporting quality. We also verify that our results are robust across different measures of financial reporting quality. Our results suggest that mandating greater expertise on audit committees rather than simply requiring one expert on the audit committee may be beneficial to investors. In addition, our results also provide weak support for the recommendation of the Blue Ribbon Committee that firms devote significant directorial resources to the audit committee. Given the prior evidence of a negative relationship between financial reporting quality and cost of capital, firms could improve their reporting quality by appropriately structuring their audit committees, thus reducing their cost of capital.

Employees and sustainability: the role of incentives

Purpose – Organizational sustainability has become a priority on many corporate agendas. How to integrate sustainability efforts throughout the organization, however, remains a challenge. The purpose of this paper is to examine two factors that potentially enhance incentive effects on employee engagement in environmental objectives: explicit organizational values for sustainability and the performance objective’s complementarity with incented financial objectives. Design/methodology/approach – The authors employed a quasi-experimental design in which participants were randomly assigned to one of four conditions, including a status quo condition against which the treatments were contrasted. Participants (n=400) were comprised of a cross-section of US employees from a wide range of occupations and industries. A post hoc qualitative analysis provided additional insights. Findings – Incentive effects were enhanced (i.e. preference for the environmental objective was significantly higher) when the environmenta...