The effect of auditor industry specialization and board independence on the cash flow reporting classification choices under IFRS: evidence from Taiwan

Purpose This study aims to investigate the impact of board independence on the cash dividend payments of family firms listed on the Borsa Istanbul (BIST) in balancing controlling families’ power to mitigate agency problems between family and minority shareholders in the post-2012 period. The authors focus on this period because Turkish authorities implemented mandatory regulations on the employment of independent directors on boards from fiscal year 2012. Design/methodology/approach The research model uses a panel dataset of 153 BIST-listed family firms over the period 2012–2017, employs alternative dependent variables and regression techniques and is applied to various sub-groups to improve robustness. Findings The empirical results show a strong positive effect of board independence on dividend decisions. The authors further detect that family directorship exhibits a negative effect, whereas both board size and audit committees have positive influences but chief executive officer (CEO)/duality has had no significant impact on the dividend policies of Turkish family firms since the new compulsory legal requirements in the Turkish market. Research limitations/implications The findings suggest that independent directorship and dividend policy are complementary governance mechanisms to reduce agency conflicts between families and minority shareholders in Turkey, which is a civil law-based emerging country characterized by high family ownership concentration. Practical implications The authors present evidence that Turkish family firms’ corporate boards have evolved, to some extent, from being managerial rubber stamps to more independent boards that raise opposing voices in family decision-making. However, independent directors’ preference for dividend-induced capital market monitoring implies that their direct monitoring is less effective than it is supposed to be. This suggests a need to revise the Turkish Corporate Governance Principles to enhance independent directors’ monitoring and supervisory power. Originality/value This is thought to be the first study to provide insights on how board independence influences dividend policy in controlling agency problems in Turkish family firms since Turkish authorities introduced compulsory rules on the employment of independent directors on boards.

Section: Descriptive Analysismentioning

confidence: 65%

The influence of board independence on dividend policy in controlling agency problems in family firms

Kılınçarslan

2021

“…To alleviate managers’ opportunistic behaviour, Alkdai and Hanefah (2012) postulated that ACs perform as a monitoring mechanism to protect shareholders’ rights and ensure the validity and reliability of financial statements. Likewise, previous studies suggested that audit committee characteristics and board of directors may mitigate agency costs and reduce managers’ involvement in earnings management methods such as CS (Al-Absy et al , 2019; Chiang et al , 2020; Obenpong Kwabi et al , 2022). Hence, this study investigates the role of ACs and audit fees in mitigating earnings management through CS among German firms.…”

Section: Literature Review and Hypothesis Developmentmentioning

confidence: 95%

The impact of audit characteristics, audit fees on classification shifting: evidence from Germany

Usman

Ezeani

Salem

et al. 2022

Purpose This paper aims to examine the relationship between audit characteristics (ACs) and audit fees on classification shifting (CS) among German-listed non-financial firms. Design/methodology/approach Using a sample of 130 German-listed (Deutscher Aktienindex, Mid Cap dax and Small caps Index) firms from 2010 until 2019, this study investigated the impact of audit committee size, audit committee meetings, audit committee financial expertise and audit fees on CS. Findings This study found the evidence of CS, meaning that managers misclassify recurring expenses in the income statement into non-recurring expenses to inflate core earnings. This study also found that the audit fee ratio, audit committee financial expertise and frequency of audit meetings are negatively associated with CS among German-listed firms. However, the audit committee size does not influence CS. Research limitations/implications This study will help the board improve its internal auditing practices and provide essential information to investors to assess how ACs affect the quality of financial reporting. Originality/value This study focused on a bank-oriented economy, i.e. Germany, with lower investor protection and low transparency. This paper documents new evidence on how ACs and audit fees impact CS among German firms, as most of the previous studies on CS mainly focused on market-oriented economies such as the UK and the USA.

“…Audit committees are responsible for monitoring the integrity of financial statements and ensuring the quality of financial reports (Salem et al , 2021; Usman et al , 2022; Hegazy, Chong and Hegazy, 2014). From 2000 to 2002, a series of corporate scandals have shaken investors’ confidence and raised concerns about the quality of financial reporting and the effectiveness of an audit committee in protecting the shareholders’ interests (Chiang et al , 2020; Frobes, 2002; Salem et al , 2020). The Sarbanes–Oxley (SOX) Act of 2002 in the USA has stipulated that audit committees need to play important roles in ensuring the quality and transparency of financial reporting as well as stressing the roles of boards of directors in implementing reliable internal control systems.…”

Section: Introductionmentioning

confidence: 99%

The impact of audit committee effectiveness on firms’ outcomes in China: a systematic review

Komal

Bilal²,

Ye³

et al. 2022

Purpose This paper aims to discuss the academic literature on the impact of audit committee effectiveness on different outcomes (accounting, auditing, governance and economics) in China. Design/methodology/approach The authors have conducted a systematic review using the PRISMA guidelines. Findings The key finding is that the regulatory organisations in China, such as the China Securities Regulatory Commission (CSRC) and the State-Owned Assets Supervision and Administration Commission (SASAC), need to play the active role that is expected of them to enhance the transparency and independence of an audit committee. Also, Chinese listed companies are facing institutional barriers (CEO power, concentrated ownership and government influence) to effectively implement the imported concept within China. Research relating to the audit committee's effectiveness has focused mainly on agency and resource dependence perspectives. Research limitations/implications China’s regulatory bodies (CSRC and SASAC) should make necessary reforms to enhance the audit committee’s effectiveness. This study also provides implications for the other settings that have imported the audit committee concept from the Anglo-American countries. Originality/value This study contributes to the literature by synthesising the prior mixed findings on audit committee literature in China and providing suggestions to the regulators and future research.