The Association Between Audit Committee Directors' Political Skill And Audit Committee Quality And Effectiveness
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Business and Management
Doctor of Philosophy
Citation of Original Publication
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Corporate audit committee (AC) quality and effectiveness have been heavily scrutinized by stakeholders for almost three decades. That scrutiny eventually led to the passage of the Sarbanes-Oxley Act of 2002 (SOX), the most comprehensive piece of business reform legislation since the Securities Act of 1933 and the Securities Exchange Act of 1934. In this dissertation, I use a hybrid resource dependence theory and agency theory underpinning to advance arguments as to why we can expect differences in the behavior of the AC due to the presence of AC directors' political skill. My dissertation is comprised of three essays that investigate the association between AC directors' political skill and AC quality and effectiveness, namely the number of AC meetings (proxy for AC diligence), audit report lag (ARL), and audit fees. The motivation for this dissertation stems from AC quality, effectiveness, and composition concerns of stakeholders (e.g. the Blue Ribbon Committee and the Securities and Exchange Commission), concerns which led to their assertions regarding certain personal characteristics a good AC director should possess to be effective. My first essay examines and empirically tests the association between AC meeting frequency and AC directors' political skill. I find significant evidence that indicates ACs with at least one politically skilled AC director are more likely to meet regularly (be more diligent). My second essay examines and empirically tests the association between ARL and AC directors' political skill, but I find no evidence to suggest that AC director's political skill impacts ARL. My third essay examines and empirically tests the association between audit fees and AC directors' political skill. I find marginally significant evidence that firms with ACs having at least one politically skilled director are more likely to incur higher fees for the external audit, suggesting that those ACs demand a more comprehensive audit.