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323) contrasts well in terms of size with the sample used by Menon and Williams (1994, pp. Our sample of major UK companies in the world’s third largest stock market (Samuels et al., 1996, Table 12.1, p. Fourth, because Menon and Williams (1994) needed a sample of firms where an AC had been formed on a voluntary basis the sample used was limited to over-the-counter (OTC) firms in the US, thereby excluding many of the largest firms. Third, the relatively recent adoption of ACs in the UK, in contrast to the United States (US) where ACs are well established, provides a setting where ACs are formed to assist the board with its monitoring activity rather than for purely cosmetic reasons. Second, we include further agency variables that may reasonably be hypothesized to influence the activity of the AC. 128) use the number of meetings held by the AC as the activity measure, we use data on both the number of meetings and the average duration of these meetings. First, we look at a more detailed measure of AC activity whereas Menon and Williams (1994, p.
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The approach we take is similar to that adopted in Menon and Williams (1994) although we differ from their study in a number of important respects. In this paper, we investigate whether AC activity in major United Kingdom (UK) companies is affected by firm specific agency factors. The unique feature of the Menon and Williams (1994) paper was the extension of the analysis from the formation of an AC to AC monitoring activity.
#Agent activity audit series#
The study followed on from a series of papers in this journal Eichenseher and Shields, 1985, Pincus et al., 1989, Bradbury, 1990 which investigated the characteristics of firms that had formed ACs. 125–127) used an agency theoretic perspective to examine the argument that firms with high agency costs will attempt to mitigate these costs by undertaking increased monitoring activity through audit committees (ACs). Indeed, in the UK, both practices are the subject of recommendations in the Hampel Committee report Hampel Committee 1998. The reduction in audit committee activity that arises from the combination of the role of chairman and chief executive officer, and the presence of insiders on the audit committee, has important policy implications. Gee, London) on the independence of audit committee members may be well founded. Report of the Committee on the Financial Aspects of Corporate Governance. 491) and the Cadbury Committee (Committee on the Financial Aspects of Corporate Governance. This result suggests that the emphasis placed by the US Securities and Exchange Commission (SEC) (Staff Report on Corporate Accountability, US Government Printing Office, Washington, DC, 1980, p.
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On the basis of this result we explored the impact of insiders (executive directors) and found that their presence on an audit committee had a significant negative impact on audit committee activity. Contrary to an agency theoretic expectation, we found that audit committee activity is reduced in firms that combine the role of chairman and chief executive. However, consistent with their agency theoretic perspective of monitoring, we found that high quality (Big Six) auditors, and to some degree leverage have a positive relationship with audit committee activity. Journal of Accounting and Public Policy 13(2), 121–139). Our results show little support from the UK data for the findings of Menon and Williams (cf. Econometrica 47(1), 153–161) which captures the two stages of the decision on audit committee activity. We contend that the dataset is best analyzed using the Heckman procedure (cf. Accounting, Business and Financial History 6(2), 121–140). In this paper, we compare the US experience and evidence on audit committees and monitoring with the position in the United Kingdom (UK), where there has been a steady growth in the number of major companies voluntarily forming audit committees over the last 15 years (Collier, P.A. Reliance on audit committees appears to depend upon board composition, while audit committee activity is associated with firm size. Journal of Accounting and Public Policy, 13(2), 121–139). Menon and Williams indicate that many United States (US) over-the-counter (OTC) firms which form audit committees appear not to rely on them (cf.
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