Joon S. Yang

The effect of audit committee performance on earnings quality

Purpose – The role of audit committees in ensuring the quality of corporate financial reporting has come under considerable scrutiny due to recent high‐profile “earnings management” cases and the collapse of Enron. The purpose of this paper is to examine the association between the characteristics of audit committees (size, independence, financial expertise, activity, and stock ownership) and earnings restatement – a direct measure of earnings management.Design/methodology/approach – Univariate correlations and multivariate statistical analyses are performed. In particular, a multivariate logistic regression model is used.Findings – Evidence suggests a negative association between the size of audit committees and the occurrence of earnings restatement. The remaining four audit committee characteristics are not found to have a significant impact on the quality of reported earnings.Research limitations/implications – This study focuses on the fiscal year 2000 only. As data become available for more fiscal y...

Agency Costs and the Short-Run Stock Price Response to Capital Expenditures

We estimate the short‐run stock price response to unanticipated capital expenditures. We use association study methodology to avoid the self‐selection bias in event studies and to facilitate construction of a large sample of firm‐years likely to exhibit agency problems. We find that the average price response to routine capital expenditures is negative, and that commonly used agency cost measures explain fully the negative response. Subsample results support the conclusion that the market is skeptical of cash flow financed spending by low‐q firms and even capital spending by high‐q firms when the firm is large and q is only marginally high.