Board ownership, audit committees’ effectiveness, and corporate voluntary disclosures

Abstract

Purpose

The aim of the paper is to examine the linkages between board ownership, audit committees' (ACs) effectiveness in terms of the proportion of independent non‐executive directors (INED) and expert members on the AC and corporate voluntary disclosures.

Design/methodology/approach

The paper is based on a sample of 124 public listed companies in Malaysia for studying differences in corporate governance characteristics which affect the financial disclosure.

Findings

The empirical results indicate that board ownership is associated with lower levels of voluntary disclosures. The result is consistent with the notion that board ownership increases agency costs resulting from information asymmetry between firm management and outsider investors. The negative relationship between board ownership and corporate voluntary disclosure is, however, weaker for firms with higher proportion of INED on the AC indicating that INED moderate board ownership/corporate voluntary disclosure relationship. Overall, the findings lend support for firms with a higher level of board ownership to include more independent directors on the AC to increase disclosure levels and reduce information asymmetry between firm management and investors.

Originality/value

The paper demonstrates the usefulness of corporate governance factors mainly board ownership and effective AC on financial reporting practices. It is expected that this research will have important policy implication to reduce information asymmetry and improves corporate governance.

Citation

Akhtaruddin, M. and Haron, H. (2010), "Board ownership, audit committees’ effectiveness, and corporate voluntary disclosures", Asian Review of Accounting, Vol. 18 No. 3, pp. 245-259. https://doi.org/10.1108/13217341011089649