Does Independent Industry Expertise Improve Board Effectiveness? Evidence From Bank CEO Turnovers

Chen, Zhongdong

doi:10.1111/irfi.12236

Cited by 10 publications

(1 citation statement)

References 80 publications

(105 reference statements)

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“…The board of directors (hereafter, board) are a group of experts elected by the shareholders to represent and protect their interests [1]. Various characteristics of the board, such as independence, size, meeting frequency, attendance, gender, and expertise, influence its effectiveness (Li and Chen, 2018;Chen, 2020;James et al, 2020). An effective board can reduce opportunistic behavior by management and concentrated insider owners (Fama and Jensen, 1983;Jensen and Meckling, 1976).…”

Section: Introductionmentioning

confidence: 99%

Board characteristics and demand for audit quality: a meta-analysis

Kalia

Basu

Kundu³

2022

ARA

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PurposeThe study explores extant knowledge on the nature of the relationship between internal and external corporate governance mechanisms, particularly board characteristics and audit quality, respectively, while also investigating how the relationship varies across geographies.Design/methodology/approachThe extant knowledge is synthesized using a meta-analysis, which is conducted using a sample of 56 empirical studies from publications of varying grades. The studies span over 25 years (1996–2021) and cover 147 empirical samples (343,787 firm-year observations) across more than 20 countries. The dependent variable is audit fees, and the independent variable captures 12 different measures of board characteristics.FindingsOverall, the results reveal a positive association between board characteristics and audit fees, indicating complementarity between governance mechanisms. Effect size analysis shows board characteristics, like size and independence, are positively associated with audit fees. However, heterogeneity is noted for some characteristics, and further analysis by geography (developed vs emerging countries) explains the heterogeneity.Practical implicationsThis study helps multiple stakeholders like firms, shareholders, boards, regulators and policymakers in designing and strengthening governance frameworks.Social implicationsBoth governance and auditing literature benefit from identifying specific board characteristics that drive audit quality consistently across different institutional settings and samples. Heterogeneity analysis helps improve the understanding of contradictions documented in prior literature.Originality/valueThis meta-analysis is the first to explore the interplay between internal and external corporate governance mechanisms, with a focus on board characteristics and audit quality. The study provides valuable insights on how different governance mechanisms influence each other while highlighting, for the first time, how the interaction between governance mechanisms varies by a country's level of development.

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