Impact Of Audit Committee Financial Experts Demographic Characteristics On Earnings Management: An Evidence From Chinese Listed Companies

An essential element of audit committee(AC)effectiveness that has come into the debate of regulators and scholars is the crucial role financial expertise plays in improving earnings quality.However,the prior research indicates the mixed evidence of audit committee effectiveness in constraining the earnings management practices in China.Thus,first of all,this study reconciles the mixed findings of prior literature regarding the relationship between audit committee effectiveness and earnings quality through meta-analysis in China.The results confirm that the audit committee's effectiveness has a positive and significant relationship with earnings quality in China.This study also provides evidence that internal control and stock exchange regulations moderate the relationship between audit committee effectiveness and earnings quality in China.Secondly,going beyond the mere presence of the audit committee financial experts(ACFEs)within the audit committee,we examine whether demographic characteristics such as education level,professional experience,gender diversity,and age diversity of ACFEs reduce the extent of earnings management or not via three empirical essays.Introductory essay,this study explores the impact of human capital,gender,and age diversity of audit committee financial experts(ACFEs)on earnings management in Chinese listed companies.The current study finds that we find evidence suggesting that ACFEs with higher qualifications such as Masters,Ph.D.,and other professional certifications mitigate earnings management.We also find that the professional experience(e.g.,working experience and multiple directorships)of ACFEs is negatively associated with earnings management.Results are more pronounced in the case of state-owned enterprises(SOEs)as compare to private owned Chinese firms(non-SOEs).The difference in differences test reported that earnings management is significantly reduced post-IFRS convergence period among Chinese firms that disclose the education of their ACFEs.The second essay explores the relationship between gender diversity of ACFEs and earnings management.We found that female ACFEs in China are more likely to mitigate earnings management compare to male counterparts.Using a sub-sample of state-owned(SOEs)and privately-owned(non-SOEs)listed companies,our study shows that female ACFEs employed in privately-owned companies tend to reduce earnings management compared to those in SOEs.Also,we considered the impact of gender of ACFEs on the listed status of Chinese companies and found that female ACFEs reduces the likelihood of earnings management compared to locally listed companies.The third essay explores the relationship between the age diversity of ACFEs and earnings management.The current study finds that the age diversity of ACFEs constrain earnings management and ultimately improve financial reporting quality.The findings suggest younger ACFEs upto 45 years significantly mitigate the earnings management.On the other hand,findings suggest that older ACFEs with 60 or above years of age are associated with higher earnings management.Results are more pronounced in the case of privately-owned companies.Findings also indicate that younger ACFEs significantly constrain earnings management in the post-IFRS convergence period as compared to older ACFEs.Overall,our results remain robust after controlling for potential endogeneity problems and using alternative proxies of earnings management.Our study provides implications for regulators for necessary policy reforms regarding audit committee composition and recommends that companies must appoint ACFEs with a higher level of education and experience to enhance the financial reporting quality.For better monitoring,companies should recruit more female financial experts as our results suggest that female financial experts are less likely to engage in earnings management.Our results also suggest that companies should recruit younger financial experts to mitigates earnings management.