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

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  • M. Akhtaruddin
  • Hasnah Haron
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    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.

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    Bibliographic Info

    Article provided by Emerald Group Publishing in its journal Asian Review of Accounting.

    Volume (Year): 18 (2010)
    Issue (Month): 3 (September)
    Pages: 245-259

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    Handle: RePEc:eme:arapps:v:18:y:2010:i:3:p:245-259

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    Web page: http://www.emeraldinsight.com

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    Postal: Emerald Group Publishing, Howard House, Wagon Lane, Bingley, BD16 1WA, UK
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    Web: http://www.emeraldinsight.com/ara.htm

    Related research

    Keywords: Audit committees; Corporate governance; Disclosure; Malaysia;

    References

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    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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    1. Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer, 1998. "Corporate Ownership Around the World," Harvard Institute of Economic Research Working Papers 1840, Harvard - Institute of Economic Research.
    2. Fan, Joseph P. H. & Wong, T. J., 2002. "Corporate ownership structure and the informativeness of accounting earnings in East Asia," Journal of Accounting and Economics, Elsevier, vol. 33(3), pages 401-425, August.
    3. Eng, L. L. & Mak, Y. T., 2003. "Corporate governance and voluntary disclosure," Journal of Accounting and Public Policy, Elsevier, vol. 22(4), pages 325-345.
    4. Andrei Shleifer & Robert W. Vishny, 1995. "A Survey of Corporate Governance," Harvard Institute of Economic Research Working Papers 1741, Harvard - Institute of Economic Research.
    5. Mak, Y. T. & Li, Yuan, 2001. "Determinants of corporate ownership and board structure: evidence from Singapore," Journal of Corporate Finance, Elsevier, vol. 7(3), pages 235-256, September.
    6. Chen, Charles J. P. & Jaggi, Bikki, 2000. "Association between independent non-executive directors, family control and financial disclosures in Hong Kong," Journal of Accounting and Public Policy, Elsevier, vol. 19(4-5), pages 285-310.
    7. Fama, Eugene F & Jensen, Michael C, 1983. "Separation of Ownership and Control," Journal of Law and Economics, University of Chicago Press, vol. 26(2), pages 301-25, June.
    8. Klein, April, 1998. "Firm Performance and Board Committee Structure," Journal of Law and Economics, University of Chicago Press, vol. 41(1), pages 275-303, April.
    9. Collier, Paul & Gregory, Alan, 1999. "Audit committee activity and agency costs," Journal of Accounting and Public Policy, Elsevier, vol. 18(4-5), pages 311-332.
    10. Nagar, Venky & Nanda, Dhananjay & Wysocki, Peter, 2003. "Discretionary disclosure and stock-based incentives," Journal of Accounting and Economics, Elsevier, vol. 34(1-3), pages 283-309, January.
    11. Chau, Gerald K. & Gray, Sidney J., 2002. "Ownership structure and corporate voluntary disclosure in Hong Kong and Singapore," The International Journal of Accounting, Elsevier, vol. 37(2), pages 247-265.
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