An Empirical Investigation Of Audit Committee Effectiveness And Risk Management: Evidence From Saudi Arabia

This study examines the association between audit committee characteristics and the combination of risk management and audit committee activities by industrial Saudi listed firms. Since none of the sample firms has established a stand-alone risk management committee and the functions of monitoring and controlling risk activities are closer to the audit committee than board of directors, this study expects that audit committees with non-executive independent members, more members on the audit committee, financially expert audit committee members and diligence are more likely to combine the risk management and audit committee activities. The study utilizes a cross-sectional analysis of 102 firm-year observations during the 2007-2011 period. A pooled logistic regression analysis is used to estimate the associations proposed in the hypotheses. The study finds that only audit committee size is positively related to the combination of risk management and audit committee activities. This result suggests that the size of the audit committee do indeed proxy for its effectiveness in enhancing the quality of internal control and, thus, monitoring risk management activities. The result of this study contributes to the existing theory and empirical evidence of how the effectiveness of audit committee is related to monitoring and controlling risk management activities. This study offers policy-makers additional evidence to be used for setting up and/or enacting regulations in Saudi Arabia.