On the role of internationalization of firm-level corporate governance : The case of audit committees
(2023) In Corporate Governance: an international review 31(5). p.737-758- Abstract
Research Question/Issue: Motivated by the agency theory and the findings of linguistic studies, we analyze the association between the internationalization of a firm's audit committee and its corporate governance. Research Findings/Insights: Based on data from 2159 publicly traded European firms from 15 countries for the period 2000–2018, we find that firms with foreign directors on their audit committees are associated with lower financial reporting quality. The association is mitigated by stronger country-level investor protection and a higher similarity among intra-committee languages. We further find that foreign directors on the audit committee are related to stock prices being less informative about future earnings.... (More)
Research Question/Issue: Motivated by the agency theory and the findings of linguistic studies, we analyze the association between the internationalization of a firm's audit committee and its corporate governance. Research Findings/Insights: Based on data from 2159 publicly traded European firms from 15 countries for the period 2000–2018, we find that firms with foreign directors on their audit committees are associated with lower financial reporting quality. The association is mitigated by stronger country-level investor protection and a higher similarity among intra-committee languages. We further find that foreign directors on the audit committee are related to stock prices being less informative about future earnings. Theoretical/Academic Implication: In this study, we argue that language differences create communication difficulties that weaken social integration between foreign directors and the other parties involved in overseeing financial reporting, thus hampering their ability to monitor effectively. Practitioner/Policy Implications: The results indicate that foreign directors on a corporate board increase its independence. However, appointing foreign directors to the firm's audit committee may compromise the board's monitoring function.
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- author
- Afzali, Aaron ; Martikainen, Minna ; Oxelheim, Lars LU and Randøy, Trond
- organization
- publishing date
- 2023-09
- type
- Contribution to journal
- publication status
- published
- subject
- keywords
- audit committee, board committees, board composition, board of director mechanisms, corporate governance, director independence, european economy(s), governance environments, individual director issues, legal control mechanisms, legal origins
- in
- Corporate Governance: an international review
- volume
- 31
- issue
- 5
- pages
- 22 pages
- publisher
- Wiley-Blackwell
- external identifiers
-
- scopus:85143886040
- ISSN
- 0964-8410
- DOI
- 10.1111/corg.12503
- language
- English
- LU publication?
- yes
- additional info
- Funding Information: Funding for the project received from Peter Wallenberg Research Foundation. Funding information Publisher Copyright: © 2022 The Authors. Corporate Governance: An International Review published by John Wiley & Sons Ltd.
- id
- b3419669-3a43-4892-8b7e-9ddfbd00ea67
- date added to LUP
- 2024-01-12 10:42:40
- date last changed
- 2024-01-12 10:43:47
@article{b3419669-3a43-4892-8b7e-9ddfbd00ea67,
abstract = {{<p>Research Question/Issue: Motivated by the agency theory and the findings of linguistic studies, we analyze the association between the internationalization of a firm's audit committee and its corporate governance. Research Findings/Insights: Based on data from 2159 publicly traded European firms from 15 countries for the period 2000–2018, we find that firms with foreign directors on their audit committees are associated with lower financial reporting quality. The association is mitigated by stronger country-level investor protection and a higher similarity among intra-committee languages. We further find that foreign directors on the audit committee are related to stock prices being less informative about future earnings. Theoretical/Academic Implication: In this study, we argue that language differences create communication difficulties that weaken social integration between foreign directors and the other parties involved in overseeing financial reporting, thus hampering their ability to monitor effectively. Practitioner/Policy Implications: The results indicate that foreign directors on a corporate board increase its independence. However, appointing foreign directors to the firm's audit committee may compromise the board's monitoring function.</p>}},
author = {{Afzali, Aaron and Martikainen, Minna and Oxelheim, Lars and Randøy, Trond}},
issn = {{0964-8410}},
keywords = {{audit committee; board committees; board composition; board of director mechanisms; corporate governance; director independence; european economy(s); governance environments; individual director issues; legal control mechanisms; legal origins}},
language = {{eng}},
number = {{5}},
pages = {{737--758}},
publisher = {{Wiley-Blackwell}},
series = {{Corporate Governance: an international review}},
title = {{On the role of internationalization of firm-level corporate governance : The case of audit committees}},
url = {{http://dx.doi.org/10.1111/corg.12503}},
doi = {{10.1111/corg.12503}},
volume = {{31}},
year = {{2023}},
}