Impact of Audit Committee Characteristics on Stock Returns: Evidence from Bangladesh

Purpose – The purpose of this paper is to investigate the effect of audit committee characteristics, such as audit committee size, audit committee independence, audit committee female members, and audit committee finance & accounting experts on stock returns. Design/methodology/approach - In this study, the companies listed on the DSE during the period from 2019 to 2024 are investigated. The ordinary least square has been used to analyze the panel data collected from 68 leading listed companies of DSE covering six years ranging from 2019-2024 and consisting of 408 company-year observations. Linear panel regression method is employed for this purpose. The independent variables of the study are composed of some corporate governance mechanisms including audit committee size, audit committee independence, audit committee gender diversity, audit committee accounting expertise, and institutional ownership. Findings – The study finds that audit committee size, audit committee independence, the presence of female directors on the audit committee, and the inclusion of finance and accounting experts significantly enhance stock returns. Furthermore, the effects of audit committee size and female representation on stock returns are more pronounced in firms with lower levels of institutional ownership, suggesting that these internal governance mechanisms can substitute for external monitoring. In contrast, the influence of audit committee independence and accounting expertise is stronger in firms with higher institutional ownership, indicating a complementary monitoring role. Implications – The study suggests the policymakers and regulatory bodies to enhance the number of auditors in the audit committees with their independence, expertness and gender diversity. Moreover, they should be empowered so that they can enhance stock return. Originality/value – This is one of the most significant types of research that looks at the effects of the board and audit committee characteristics on profitability in an emerging market. Bangladesh and other developing nations may benefit from the study's findings.