Exploring the Effects of Audit Committee Characteristics on Firm Performance and CEO Tenure as a Moderator

There has been an ongoing debate about how to reform corporate governance in order to establish accountability of the board of directors and transparency of internal control systems. Along with the growing imposition of regulatory mandates, shareholder activists have argued that catastrophic events can be avoided by having a more vigilant audit committee. The audit committee is an important operating subcommittee of the board of directors which is charged with the rules about supervision of the management and the quality of audit function. Their main duty is to monitor and supervise the management while being responsible for accounting and the internal control system of companies. Given the growing importance of audit committees in controlling managerial behavior, we examine how audit committee characteristics affect firm performance. Furthermore, we examine whether CEO tenure moderates the relationship between audit committee characteristics and firm performance. We tested our hypotheses using 72 sample firms from the Korea’s top 100 firms over a period of 2004-2009. Results show that audit committee characteristics (measured in terms of independence, expertise, and activity) are positively associated with firm performance. Results also demonstrate that CEO tenure positively moderates the relationship between audit committee characteristics and firm performance.