The impact of Audit Committee financial expertise on corporate financial decisions

Hidaya Mustafa Ali Al Lawati, Khaled Hussainey

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Abstract

Audit committee (AC) financial experts consider one of the important corporate governance mechanisms in the corporations due to their vital role in overseeing companies’ financial reporting procedures and enhancing corporate financial decisions. Regulators and policy makers require Omani firms to have at least one director with financial expertise sitting on ACs. Therefore, our aim is to investigate the effect of AC financial expertise on corporate financial decisions (capital structure, dividend payment and cash holdings). We use a data set of all Omani financial institutions (36 firms) listed on Muscat Stock Exchange (MSX) over the period of 2014 to 2019, consisting of 216 firm-year observations. The paper contributes to the growing body of the literature by being the first study to examine the direct relation of the impact of AC financial expertise on financial decisions. The study also contributes to the literature by integrating multiple theories: agency, resource dependence and signalling, to enlighten the effect of the uniqueness power of the financial expertise on making useful financial decisions. We find that AC members with financial expertise are positively related to the level of cash holdings, leverage and dividend payment in the financial companies. The findings provide empirical evidence to regulators to encourage companies to exceedingly appoint professional expertise on AC due to their unique resources, which improve their monitoring role and constraining management opportunistic behaviour.
Original languageEnglish
Pages (from-to)348–359
JournalCorporate Ownership and Control
Volume18
Issue number3
Early online date28 May 2021
DOIs
Publication statusPublished - Jun 2021

Keywords

  • Audit Committee
  • Oman
  • Financial Expertise
  • Capital Structure
  • Dividend Policy
  • Cash Holdings

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