Impact of family dominance on monitoring of earnings management by audit committees : Evidence from Hong Kong

Research output: Journal Publications and Reviews (RGC: 21, 22, 62)21_Publication in refereed journalpeer-review

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Detail(s)

Original languageEnglish
Pages (from-to)27-50
Journal / PublicationJournal of International Accounting, Auditing and Taxation
Volume16
Issue number1
Publication statusPublished - 2007

Abstract

This study examines whether the establishment of audit committees by Hong Kong firms would constrain earnings management, especially in firms with family-dominated corporate boards, a condition unique to Hong Kong. The study uses the methodology of three-stage (3SLS) regression analyses to control for endogeneity among earnings management, voluntarily established audit committee, and corporate board size. The results of regression analyses based on 523 observations for the period of 1999-2000 when the audit committees were first established by Hong Kong firms show that overall audit committees play a significant role in constraining earnings management even in the business environment of higher ownership concentration. The effectiveness of audit committees is, however, significantly reduced when family members are present on corporate boards, especially when family members dominate the corporate board. © 2007 Elsevier Inc. All rights reserved.

Research Area(s)

  • Audit committee, Discretionary accruals, Earnings management, Family dominance, Ownership Concentration