Essays on audit committee financial expertise.
详细信息
文摘
This dissertation includes two essays. Each essay deals with different research questions related to audit committee financial expertise. Essay one documents the existence of expertise rents from insider trading for financial experts on audit committees,as these financial experts obtain higher abnormal returns from insider stock purchases than do non-financial experts. Induced by financial experts superior skills in information processing and trade timing,these expertise rents are economically significant relative to the average compensation of audit committee members. We further find two effective mechanisms in limiting the expertise rents earned by financial experts. The first is to strengthen corporate governance,as expertise rents are larger for firms with poor governance. The second is to adjust audit committee composition in favor of more accounting financial experts,as expertise rents are mainly driven by non-accounting financial experts. The latter finding supports SOX 407s original narrow definition that limits financial experts to those with prior accounting experience. Essay two examines whether having accounting financial experts on audit committees can mitigate the upward bias of expected rates of return ERR) on pension plan assets documented in prior research. We find that ERRs are lower in firms with accounting financial expertise on their audit committees. These results hold after including control variables from prior pension and governance research. Our findings suggest that accounting financial expertise on audit committees can deter managers from setting higher ERRs on pension assets. This paper is the first to document the impact of corporate governance on pension accounting.