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Audit committees and financial reporting quality: The 8th EU Company Law Directive perspective

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  • Bajra, Ujkan
  • Čadež, Simon

Abstract

In order to increase corporate governance quality, the 8th EU Company Law Directive enacted a mandatory audit committee in publicly listed companies in the EU and defined its tasks and responsibilities. In response to the directive, we examine the incremental value of audit committee monitoring effectiveness and audit committee competencies over the mere existence of an audit committee. We find that audit committee monitoring effectiveness and competencies are positively associated with financial reporting quality, whereas, somewhat surprisingly, the effect of the existence of an audit committee is negative. This finding shows that the existence of audit committees is a necessary but not a sufficient condition for enhancing financial reporting quality. Collectively, the study’s findings suggest that the 8th Directive has had a positive effect on corporate governance quality and, in turn, financial reporting quality in the EU.

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  • Bajra, Ujkan & Čadež, Simon, 2018. "Audit committees and financial reporting quality: The 8th EU Company Law Directive perspective," Economic Systems, Elsevier, vol. 42(1), pages 151-163.
    • Handle: RePEc:eee:ecosys:v:42:y:2018:i:1:p:151-163
    DOI: 10.1016/j.ecosys.2017.03.002
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    More about this item

    Keywords

    Audit committee; Audit committee competencies; Financial reporting quality; 8th Company Law Directive; Corporate governance;
    All these keywords.

    JEL classification:

    • G3 - Financial Economics - - Corporate Finance and Governance
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • M48 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Government Policy and Regulation

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