Business, Management and Accounting
4 years ago

Market values accounting financial expertise on audit committees for improved financial reporting.

Journal of Accounting Research
Does the Market Value Financial Expertise on Audit Committees of Boards of Directors?
Mark L. DeFond, Rebecca N. Hann, Xuesong Hu

Paper Summary

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The study looked at how the stock market reacts to the appointment of financial experts to audit committees before the Sarbanes-Oxley Act. They found that the market responds positively when accounting financial experts are appointed, but not when non-accounting financial experts are chosen. This suggests that having accounting skills on audit committees helps improve financial reporting quality. The positive market reaction is stronger in companies with good corporate governance, showing that financial expertise works best when combined with strong governance practices.