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Audit committee members with CEO experience and the value of cash holdings

Author

Listed:
  • Sunhwa Choi
  • Jinwoong Han
  • Taejin Jung
  • Bomi Song

Abstract

Purpose - The purpose of this study is to examine whether the presence of an audit committee (AC) members with Chief Executive Officer (CEO) experience (supervisory experts) affects the market value of cash holdings. Design/methodology/approach - To estimate the marginal value of cash holdings, this study uses the model proposed by Faulkender and Wang (2006). The sample is 2,031 firm-year observations in Korea from 2000 through 2015. Findings - The authors find that the presence of supervisory experts on ACs has a negative impact on the value of cash holdings. This result suggests that supervisory experts on ACs weaken monitoring of managerial actions. The authors also find that the negative effect of supervisory experts on the value of cash holdings is mitigated when there are other AC members with accounting expertise. Practical implications - The findings that AC supervisory expertise impairs the effectiveness of ACs, and thus destroys shareholder value have policy implications because the current regulations in many countries use a broad definition of financial expertise that includes supervisory expertise. Originality/value - This is the first study that directly examines the effect of AC supervisory expertise on the value of cash holdings. The study also contributes to the literature on the role of ACs in emerging markets by documenting the limitations of corporate governance systems adopted from the Anglo–Saxon model.

Suggested Citation

  • Sunhwa Choi & Jinwoong Han & Taejin Jung & Bomi Song, 2020. "Audit committee members with CEO experience and the value of cash holdings," Managerial Auditing Journal, Emerald Group Publishing Limited, vol. 35(7), pages 897-926, July.
    • Handle: RePEc:eme:majpps:maj-04-2019-2269
    DOI: 10.1108/MAJ-04-2019-2269
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    Citations

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    Cited by:

    1. Cho, Meeok & Kim, Hui Dong & Kim, Yewon, 2023. "Audit committee accounting financial expertise and stock price crash risk," International Review of Financial Analysis, Elsevier, vol. 90(C).
    2. Masoud Azizkhani & Sarowar Hossain & Mai Nguyen, 2023. "Effects of audit committee chair characteristics on auditor choice, audit fee and audit quality," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 63(3), pages 3675-3707, September.
    3. Bomi Song, 2022. "The Influence of Audit-Committee Characteristics on the Association between Corporate Social Responsibility and Earnings Quality," Sustainability, MDPI, vol. 14(17), pages 1-16, August.

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