The Economic Consequences Of Audit Committee Transparency ——A Quasi-Natural Experimental Study Based On Chinese Background

The audit committee,as an independent internal supervisory force for corporate financial reporting,has been highly expected by stakeholders since its inception in the1930 s.However,contrary to expectations,the audit committee does not seem to have fully played the role of supervision and governance.In recent years,various financial frauds that occurred frequently around the world have caused deep public doubts about the audit committee,because they have little knowledge about whether and how the audit committee performs their duties.How to improve the effectiveness of the audit committee,and enhance investors' confidence in the audit committee? The IFAC has said in its report that increasing transparency about how audit committees perform their duties is crucial to improving audit committee effectiveness.In 2013,the SSE issued the Guidelines on the Operation of Audit Committee,which further stipulated the information disclosure of audit committee.In 2015,SEC issued a concept named“Possible Revisions to Audit Committee Disclosure”,to solicit public comments or suggestions on the reform of the information disclosure of the Audit Committee.At the same time,other countries,such as the UK,Australia and the European Union,are also actively seeking changes in the transparency of the audit committee.However,the costs and benefits of this major reform of the audit committee's transparency have caused a lot of controversy in practice.In existing research,the views on the voluntary disclosure have formed two views: valid and invalid,so if the audit committee is required to disclose the performance information to improve the transparency of the audit committee,what kind of impact will it bring? It seems that there is little literature to discuss,so the cost and benefit of the audit committee transparency reform is still an empirical issue.Based on this,this paper takes China's A-share non-financial listed companies as the research object,using the quasi-natural experiment of information disclosure requirements of the Audit Committee of the Shanghai Stock Exchange in 2013.With the accounting information quality,executive perquisites,major shareholders tunneling behavior and enterprise value as the main entry points,investigate the economic consequences of increasing the transparency of the audit committee.The empirical results show that:(1)The increased transparency of the audit committee significantly improves the quality of corporate accounting information,and this effect is more pronounced in companies with higher misreporting risk and agency costs.This shows that the improvement of the audit committee transparency can have a positive effect on the audit committee's monitoring on the quality of accounting information,especially in the case of the imperfect financial report generation mechanism.(2)The improvement of the audit committee's transparency has significantly reduced the level of executive perquisites,and the effect is more pronounced in companies with relatively weak internal and external governance environment.This indicates that the improvement of the audit committee's transparency can reduce the agency cost between shareholders and management,especially in the case of highly asymmetric internal and external information.(3)The increase in transparency of the audit committee has significantly reduced the tunneling degree of large shareholder,and this effect is more pronounced in companies with stronger motives and opportunities for large shareholders tunneling.This indicates that the improvement of the audit committee's transparency can reduce the agency cost between large shareholders and minority shareholders,especially in the case of imperfect control mechanisms for large shareholders.(4)The increased transparency of the audit committee has significantly improved corporate value,and this effect is more pronounced in companies with relatively low levels of internal governance and external marketization.This indicates that the improvement of the transparency of the audit committee can have a positive and comprehensive effect in the balance between costs and benefits.In these studies,through further examination of the role of the audit committee,found that after improving the transparency of the audit committee,the characteristics of the audit committee are more closely related to the accounting information quality,suppression of executive perquisites,constraints of tunneling behavior,and corporate value rising.To a certain extent,the improvement of transparency promotes the transformation of the characteristics of audit committee from form to substance,and supports the role of audit committee supervision and governance.The main innovations and contributions of this article are as follows:(1)From the perspective of income,it responds to the current controversy about the transparency of the audit committee.At present,many countries including the United States are trying to promote the reform of the mandatory disclosure of information by the audit committee,but for the cost and benefit,there is still a lack of empirical evidence.Based on the mandatory disclosure requirements issued by Shanghai Stock Exchange,this article empirically examines the impact of changes in the audit committee transparency from the perspectives of accounting information quality,agency costs,and corporate value.(2)The research in this paper enriches the relevant literature on the influencing factors of the audit committee's performance efficiency.By combing the existing research context on the factors affecting the audit committee's performance efficiency,it can be seen that the relevant literature focuses on the characteristics of the audit committee and a small number of internal and external environmental factors.This paper uses the changes in external supervision policies to empirically test the impact of the changes in the audit committee's transparency on the supervision and governance effects of audit committees.(3)The conclusions of this paper expand and enrich the domestic research on the economic consequences of the audit committee.Since the responsibilities of the audit committee have been defined and improved,researches mainly focus on the influence of the audit committee on the financial report quality,internal control and external audit.This paper verifies the governance effect of the audit committee in reducing agency costs for shareholders and management,protecting the interests of small and medium investors,from the perspective of executive perquisites and large shareholders tunneling,and verifies the comprehensive impact on corporate value.(4)This article is based on the quasi-natural experimental study of exogenous shock events,to some extent,it alleviates the endogenous problems in the existing audit committee research.As the internal governance mechanism of the company,the composition and nature of the audit committee may be determined endogenously.This article uses the exogenous event of the mandatory information disclosure requirement issued by the Shanghai Stock Exchange,based on the double difference model,to better separate the difference between the event group and the control group,so as to effectively avoid the endogenous problem of mutual causation,sample selection,and missing variables.It provides a methodological reference for the audit committee research.