Modelling the impact of audit/remuneration committee overlap on debtholders' perceptions of accounting information quality: The role of CEO power

Redhwan Al-Dhamari, Abdulsalam Saad Alquhaif and Bakr Ali Al-Gamrh
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Redhwan Al-Dhamari: UUM - Universiti Utara Malaysia
Abdulsalam Saad Alquhaif: University of Hail
Bakr Ali Al-Gamrh: ESC [Rennes] - ESC Rennes School of Business

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Abstract: This study examines how debtholders perceive accounting information quality of firms with audit committee members who are also on the remuneration committee, and whether strong CEO power enhances or undermines the gov- ernance role of overlapping committees. Using 841 observations of Malaysian firms over the period 2013–2015, we find that firms with overlapping audit and remuneration committees are perceived by debtholders to be transparent and of lower operating risk and, consequently, be associated with lower cost of debt. We also find that the beneficial effect of the presence of overlapping com- mittees is weakened by the level of CEO power. Our results are robust to con- cerns of endogeneity and alternative measurers of the key variables. This study is timely in light of recently increasing call for the broadening of audit commit- tee members' understanding of business strategies, risks and incentives pro- vided by firms' executive compensation structures. Our study also contributes to the ongoing debate surrounding CEO power by suggesting that debtholders perceive potent CEO power as detrimental to their investments and thus charge higher interest rates from firms with powerful CEOs and overlapping directors.

Date: 2022-07
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Published in International Journal of Finance and Economics, 2022, 27 (3), pp.2898-2920. ⟨10.1002/ijfe.2304⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-03869019

DOI: 10.1002/ijfe.2304

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