The Even-Odd Nature of Audit Committees and Corporate Earnings Quality

43 Pages Posted: 6 Feb 2014 Last revised: 11 Dec 2015

See all articles by Huasheng Gao

Huasheng Gao

Fanhai International School of Finance, Fudan University

Jun Huang

Shanghai University of Finance and Economics

Date Written: December 11, 2015

Abstract

We apply voting theory to the context of audit committees and examine how the even-odd nature of audit committees is related to earnings quality. We hypothesize that an audit committee with an odd number of directors can improve the committee’s voting efficiency by better aggregating directors’ information and thus enhance the quality of committee decisions, as compared to an audit committee with an even number of directors. Supporting this implication, we find that an odd audit committee is associated with lower likelihood of financial restatements than an even audit committee and that this relation is stronger when the committee members have more heterogeneous opinions, hold less equity ownership, are in a smaller audit committee, and face an more entrenched management.

Keywords: Voting Efficiency, Audit Committee, Financial Restatement, Earnings Quality, Even, Odd

JEL Classification: G30, G38

Suggested Citation

Gao, Huasheng and Huang, Jun, The Even-Odd Nature of Audit Committees and Corporate Earnings Quality (December 11, 2015). Journal of Accounting, Auditing and Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2391638 or http://dx.doi.org/10.2139/ssrn.2391638

Huasheng Gao (Contact Author)

Fanhai International School of Finance, Fudan University ( email )

Beijing West District Baiyun Load 10th
Shanghai, 100045
China
2165642222 (Phone)
2165642222 (Fax)

Jun Huang

Shanghai University of Finance and Economics ( email )

No. 777 Guoding Road, Shanghai
Shanghai, 200433
China

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