ABSTRACT
This paper examines the relationship between audit committee characteristics and regulatory scrutiny. Comment letters issued by the Securities and Exchange Organization of Iran were used to measure regulatory scrutiny. Empirical results show that audit committee financial expertise increases (decreases) regulatory scrutiny when audit committee independence is low (high). This paper informs the cost-benefit debate on audit committee financial expertise. It contributes to the literature by showing that regulatory scrutiny is jointly influenced by the audit committee independence and financial expertise. The paper is of interest to researchers and shareholders, boards of directors, and other practitioners who wish to improve the composition and quality of audit committees, especially in emerging markets where corporate governance codes are still developing.
Keywords:
financial expertise; independence; comment letter; audit committee; regulatory scrutiny.
Thumbnail
Note: This figure outlines the association of audit committee financial expertise (Expert), audit committee independence (Indep), and CL (CL).Definition of variables: CL is a binary variable coded one for firms that receive an SEO comment letter; Expert denotes the percentage of financial expert members on the company’s audit committee; Indep is the percentage of independent members on the company’s audit committee. Controls reflect control variables as defined in