Audit Committee Chair Power and Financial Reporting Quality

Several prior studies continue to find evidence of financial reporting problems in a post-SOX U.S. environment and suggest that regulation is not operating effectively to address threats to financial reporting quality (FRQ). My study specifically examines how audit committee chairpersons’ (ACC) power may influence managers, and external auditors to work towards improving FRQ. Four FRQ models are employed and results suggest that ACCs’ referent, information, and reward/coercive power are associated with higher FRQ (proxied by restatements, earnings management, internal control weaknesses and propensity to meet/beat zero earnings threshold). The main findings are reinforced by a battery of sensitivity, and additional tests.