Involvement of Management, Audit Committee and Earnings Quality

Abstract

This paper exams how managerial power affect the governance effectiveness within the audit committee from the cases of A-share listed companies in 2013-2015. Studies show that the power erosion of the audit committee has a negative effect on the earnings quality of listed companies, while the management incentives can regulate the negative association between them. This paper indicates that the imbalance of governance mechanism and management intervention will weaken the governance effectiveness of the audit committee, but effective incentive mechanism can ease the self-interested behavior of management and the manipulation of the audit committee. In this paper, the executive director of the audit committee as the object of research, the impact of the managerial power on the audit committee is transferred from outside to internal, providing a new perspective to explore the underlying factors of the effectiveness of the audit committee. The results of this paper show that enterprises should standardize the governance structure and coordinate check-and-balance mechanism. Independent supervision, effective check and balance are significant premises of operating the company effectively and protecting the interests of minority shareholders.