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Modelling the impact of audit/remuneration committee overlap on debtholders' perceptions of accounting information quality: The role of CEO power

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  • Redhwan Al‐Dhamari
  • Abdulsalam Saad Alquhaif
  • Bakr Ali Al‐Gamrh

Abstract

This study examines how debtholders perceive accounting information quality of firms with audit committee members who are also on the remuneration committee, and whether strong CEO power enhances or undermines the governance role of overlapping committees. Using 841 observations of Malaysian firms over the period 2013–2015, we find that firms with overlapping audit and remuneration committees are perceived by debtholders to be transparent and of lower operating risk and, consequently, be associated with lower cost of debt. We also find that the beneficial effect of the presence of overlapping committees is weakened by the level of CEO power. Our results are robust to concerns of endogeneity and alternative measurers of the key variables. This study is timely in light of recently increasing call for the broadening of audit committee members' understanding of business strategies, risks and incentives provided by firms' executive compensation structures. Our study also contributes to the ongoing debate surrounding CEO power by suggesting that debtholders perceive potent CEO power as detrimental to their investments and thus charge higher interest rates from firms with powerful CEOs and overlapping directors.

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  • Redhwan Al‐Dhamari & Abdulsalam Saad Alquhaif & Bakr Ali Al‐Gamrh, 2022. "Modelling the impact of audit/remuneration committee overlap on debtholders' perceptions of accounting information quality: The role of CEO power," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 27(3), pages 2898-2920, July.
    • Handle: RePEc:wly:ijfiec:v:27:y:2022:i:3:p:2898-2920
    DOI: 10.1002/ijfe.2304
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