The effects of audit committee characteristics on its oversight effectiveness: Evidence from Hong Kong

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Abstract

This study examines the relationships between audit committee (AC) characteristics and its oversight effectiveness primarily measured as accrual and real earnings management in Hong Kong after the Asian financial crisis in 2008 for a sample of Hong Kong Hang Seng Index between 2010 and 2015. Using a total of 1719 firm-year observations, we find that audit committee size is negatively associated with discretionary accruals, while the average age of the audit committee members is positively associated with discretionary accruals. The average age of the audit committee members is negatively associated with real earnings management while audit committee tenure and the number of audit committee meetings motivate managers to engage in real earnings management. The findings are useful to regulators in Hong Kong and to those with similar institutional and cultural environments and ownership structure.

Keywords: Accrual Earnings Management, Real Earnings Management, Audit Committees, Hong Kong, Asian Financial Crisis

Authors’ individual contribution: Conceptualization — K.Y.C. and I.A.; Methodology — K.Y.C. and I.A.; Formal Analysis — K.Y.C.; Writing — Original Draft — K.Y.C.; Writing — Review & Editing — K.Y.C. and I.A.; Visualization — K.Y.C. and I.A.; Project Administration — K.Y.C. and I.A.

Declaration of conflicting interests: The Authors declare that there is no conflict of interest.

JEL Classification: G34, M14, M48

Received: 16.08.2022
Accepted: 12.10.2022
Published online: 14.10.2022

How to cite this paper: Cheung, K. Y., & Adelopo, I. (2022). The effects of audit committee characteristics on its oversight effectiveness: Evidence from Hong Kong. Corporate Ownership & Control, 20(1), 8–18. https://doi.org/10.22495/cocv20i1art1