Determinants of Audit Committee Independence in the Financial Sector of Bangladesh

Abstract

This paper examines the determining factors of the audit committee independence in the financial sector of Bangladesh by employing a cross-sectional regression analysis on 72 financial firms. The paper reveals that firms with large boards and more non-executive directors tend to provide more independence to the auditors. Also, large firms with potential growth opportunities show less interest in giving freedom to the audit committee members; whereas firms with the higher leverage demand more audit committee independence to confirm quality monitoring and quality financial statements. The study, however, reveals a negative relationship between the size of the audit committee and its work independence. The study also does not find any significant association between audit committee independence and presence of experts in the audit committee, percentage of insider ownership, free cash flow, and firms’ profitability.

An Examination of Voluntary Disclosure, Independent Board, Independent Audit Committee and Institutional Ownership: Firm Size as a Moderator

“…Based on research conducted by Al-Janadi et al, (2013) there was no significant relationship between the proportions of the independent audit committee with voluntary disclosure. In another study, it was mentioned that an increase in the members of the independent audit committee does not mean that the more experienced audit committee members become increased as well (Adhikary & Mitra, 2016).…”

Determinants of Board Independence in the Banking Sector of Bangladesh

“…In addition, both Collier (1993) and Beasley and Salterio (2001) reported that keeping pace with the increase in board size, the ability of a firm to employ more independent directors increase. Moreover, Adhikary and Mitra (2016) found that firms with larger board had more independent audit committee. On the other hand, it is also argued that monitoring role is stronger in a smaller board and it is less probable that the board be captured by the CEO when it is small.…”

“…This study recognizes profitability as having an important link with board independence. Adhikary and Mitra (2016) hypothesized that when there is a possibility of private gain for insiders, firms should employ more independent directors in audit committee. From that hypothesis, it is reasonable to conclude that insiders have incentives to manipulate firm profitability to serve self-interests.…”

Directors’ Remuneration and Performance: Evidence from the Textile Sector of Bangladesh

“…Contrary to the advanced systems of corporate governance in developed economies, typically in Bangladesh, ownership is concentrated and consequently boards are influenced/dominated by the owners having significant stakes of shares. Moreover, the firms have one-tiered boards where both executive and nonexecutive directors work collectively in one organizational layer (Rashid, De Zoysa, Lodh, & Rudkin, 2012;Rashid, 2018) where the proportion of executive directors is higher (Adhikary & Mitra, 2016). Given the above circumstances along with an existence of an inefficient market, less takeover regulations, and takeover processing costs, the boards have discretion and power to influence their remuneration irrespective of firms` financial performance.…”