Audit committee effectiveness and family firms: impact on performance

Abstract

Purpose

The purpose of this paper is to empirically examine the relationship between audit committee characteristics and firm performance, and whether family ownership and involvement moderate the latter relationship.

Design/methodology/approach

Following Anderson and Reeb (2003), this paper estimates a two-way fixed effects model. A sub-sample analysis is used by first examining the impact of audit committee effectiveness on firm performance only in non-family firms and then only in family firms. A fully interacted model was also analyzed in the robustness tests.

Findings

This paper finds that the audit committee characteristics of size, expertise and meeting frequency are positively and significantly related to non-family firm performance, while insignificantly related to family firm performance.

Research limitations/implications

The evidence reported in this paper may be of use for regulators and policy makers pondering corporate governance reforms, as well as for investors, managers and minority shareholders concerned with firm performance and valuation.

Originality/value

To the best of the authors’ knowledge, this is the first study of its kind to examine the moderating effect of family control and involvement on the relationship between firm performance and audit committee effectiveness in terms of size, expertise and meeting frequency.

Citation

Al-Okaily, J. and Naueihed, S. (2020), "Audit committee effectiveness and family firms: impact on performance", Management Decision, Vol. 58 No. 6, pp. 1021-1034. https://doi.org/10.1108/MD-04-2018-0422