Audit Committee characteristics, financial reporting quality and corporate performance
: the case of Oman

  • Hidaya Mustafa Ali Al Lawati

Student thesis: Doctoral Thesis

Abstract

A new version of the Omani corporate governance code was introduced in 2015. It emphasises the role of the audit committee (AC) in overseeing the financial reporting process, which has been the focus of massive regulatory attention in recent years due to high-profile scandals. The code recommends that ACs are responsible for assessing the integrity of internal control and a company’s risk management framework and this is accomplished by the code setting out mechanisms to regulate the AC members’ characteristics. It also sets out a new and unique provision, which prevents the chairperson of an AC being a member of any other committees within a company. It does set out requirements for the nomination and remuneration/compensation committees, however, which results in members overlapping across these committees. A royal decree in 2019 introduced the Oman Vision 2040 strategy, which places importance on forward-looking disclosure (FLD) and recommends all companies be transparent and attentive in providing the information required by regulators, shareholders and investors in a timely and appropriate manner so as to enable them to make the right decisions.
These amendments to the code prompted us to study the characteristics and overlapping attributes of AC in improving the quality of financial reporting, measured by FLD, in Oman. This thesis consists of four empirical chapters. The first chapter examines whether the existence of overlapping AC members has any impact on the level of FLD. The question addressed in the second chapter is how AC attributes affect FLD quality and quantity. The third chapter develops measures of overlapping AC members and test the impact of these measures on FLD quality and quantity. Finally, the fourth chapter provides fresh evidence regarding the relationship between a firm’s performance and FLD tone, and whether overlapping AC members play a role in moderating this relationship.
The analysis offers several interesting findings. First, AC attributes enhance FLD. Second, overlapping AC chair and the existence of overlapped AC members positively (negatively) affect FLD quality (quantity). Third, firms’ financial performance positively influences FLD tone. Finally, overlapped AC members moderate the relationship between firms’ performance and FLD tone.
These results reveal the efficient monitoring skills of AC members and the effectiveness of their attributes in ensuring the quality of FLD. Finally, the findings have potential policy implications, as they show Omani regulators (and managers) the benefits of AC attributes and overlapping for a firm and its stakeholders. In this manner, it contributes practically in constructing the required information for any governance policy.
Date of AwardMar 2020
Original languageEnglish
SupervisorKhaled Hussainey (Supervisor) & Roza Sagitova (Supervisor)

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