Impact of qualification of expert directors on audit committee and firm performance

Abstract

The complexity in operations of finance companies and the various corporate scandals and frauds have necessitated the need for regulators to require firms to have an expert director on audit committee. Using panel data obtained from a sample of finance companies, we extend the literature by examining the impact of type of expertise of directors on audit committee and performance of finance firms in Malaysia. The results suggest that accounting qualification significantly influences return on assets in the positive direction while industry experience affects market valuation of firms negatively. Our result is robust to potential endogeneity problem as shown by the results of estimation based on two stage least squares and generalized method of moments. The results support the requirement by Central bank for finance companies to have at least a director with accounting qualification on audit committee. The study is limited to listed finance companies in Malaysia and based on five-year data.

Keywords: Accounting qualification, finance qualification, industry experience, audit experience.