Audit committee tenure, financial reporting quality, and auditor independence

Mark Kohlbeck and Lin Wang

Managerial Auditing Journal, 2025, vol. 40, issue 3, 303-327

Abstract: Purpose - The purpose of this study is to examine the effect of audit committee (AC) tenure on corporate governance, a topic that has been long debated. Social capital theory explains how directors’ effectiveness varies through tenure. Consistent with this theory, this paper argues that AC tenure has an inverted U-shaped relationship with AC governance. Design/methodology/approach - This paper estimates a quadratic function that regresses constructs for AC governance on the average AC, the AC chair, and nonchair tenure, and their respective square terms. The constructs for AC governance include financial reporting quality measures and perceived auditor independence measures. Findings - This paper finds that average AC, AC chair, and nonchair tenure have inverted U-shaped relationships with financial reporting quality, consistent with social capital theory. This paper also finds similar associations when examining perceived auditor independence. The results are generally consistent with AC directors accumulating knowledge and social capital, which improves AC governance to an optimal level, following which entrenchment and familiarity occur and AC governance declines. Originality/value - To the best of the authors’ knowledge, this is the first study in AC governance literature to show a nonlinear relationship between AC tenure and AC governance. This paper extends Huang and Hilary (2018) by demonstrating that a nonlinear effect is also present in the AC, a key board committee responsible for monitoring financial reporting quality and appointing auditors and approving their services. This paper further documents that the AC subsumes the effect of the overall board in some areas of AC oversight, and reconciles the inconclusive findings of prior research by showing a nonlinear relationship between AC tenure and AC governance.

Keywords: Audit committee; Tenure; Governance; Financial reporting quality; Nonaudit service fees; Auditor independence; Entrenchment; Director social capital (search for similar items in EconPapers)
Date: 2025
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (text/html)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (application/pdf)
Access to full text is restricted to subscribers

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eme:majpps:maj-06-2024-4374

DOI: 10.1108/MAJ-06-2024-4374

Access Statistics for this article

Managerial Auditing Journal is currently edited by Professor Jie Zhou

More articles in Managerial Auditing Journal from Emerald Group Publishing Limited
Bibliographic data for series maintained by Emerald Support ().