Audit committees’ independence and the information content of earnings announcements in Western Europe

Poretti, Cédric (Ecole hôtelière de Lausanne, HES-SO // University of Applied Sciences Western Switzerland) ; Schatt, Alain (HEC Lausanne, Switzerland) ; Bruynseels, Liesbeth (KU Leuven, Belgium)

We examine whether the percentage of independent members sitting on the audit committee, in different institutional settings, impacts the market reaction (measured by the abnormal stock returns variance and the abnormal trading volume) to earnings announcements. For our sample composed of more than 7′600 earnings announcements made by European firms from 15 countries between 2006 and 2014, we find that the market reactions to earnings announcements are significantly larger when the audit committee is more independent in countries with weak institutional setting. Our results generally hold after controlling for numerous methodological issues. We conclude that more independent audit committees are substitutes for weak institutions to increase the credibility of earnings announcements. Our results should be of great interest for European regulators who recently introduced new requirements for public firms regarding audit committees’ independence.


Keywords:
Article Type:
scientifique
Faculty:
Economie et Services
School:
EHL
Subject(s):
Economie/gestion
Date:
2018-06
Pagination:
25 p.
Published in:
Journal of accounting literature
Numeration (vol. no.):
2018, vol. 40, pp. 29-53
DOI:
Appears in Collection:



 Record created 2018-10-31, last modified 2018-12-20

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