Audit committees and financial reporting quality: The 8th EU Company Law Directive perspective

Ujkan Bajra and Simon Čadež

Economic Systems, 2018, vol. 42, issue 1, 151-163

Abstract: In order to increase corporate governance quality, the 8th EU Company Law Directive enacted a mandatory audit committee in publicly listed companies in the EU and defined its tasks and responsibilities. In response to the directive, we examine the incremental value of audit committee monitoring effectiveness and audit committee competencies over the mere existence of an audit committee. We find that audit committee monitoring effectiveness and competencies are positively associated with financial reporting quality, whereas, somewhat surprisingly, the effect of the existence of an audit committee is negative. This finding shows that the existence of audit committees is a necessary but not a sufficient condition for enhancing financial reporting quality. Collectively, the study’s findings suggest that the 8th Directive has had a positive effect on corporate governance quality and, in turn, financial reporting quality in the EU.

Keywords: Audit committee; Audit committee competencies; Financial reporting quality; 8th Company Law Directive; Corporate governance (search for similar items in EconPapers)
JEL-codes: G3 G38 M48 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (14)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecosys:v:42:y:2018:i:1:p:151-163

DOI: 10.1016/j.ecosys.2017.03.002

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