Business of audit committee directors and quality of financial information in India

Abstract

The audit committees, as a part of the internal corporate governance mechanisms, play an important role to enhance the financial reporting quality. The busyness of audit committee members of a firm in boards and committees of other firms can affect its independent functioning, ceteris paribus. The current study examines, first, the association between multiple directorships of audit committee members and quality of financial reporting in India, second, whether endogenously determined busyness limits of busyness of the audit committee members provide better insights than those exogenously mandated by regulators. The study finds that endogenously determined busyness limits of sub-samples and the full sample explain the association between multiple directorships of audit committee members and financial reporting quality in a better way than those stipulated by regulators. Further, a lower (higher) level of busyness of audit committee members enhances (deteriorates) financial reporting quality of firms.