Impact of family dominance on monitoring of earnings management by audit committees: Evidence from Hong Kong

This study examines whether the establishment of audit committees by Hong Kong firms would constrain earnings management, especially in firms with family-dominated corporate boards, a condition unique to Hong Kong. The study uses the methodology of three-stage (3SLS) regression analyses to control f...

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Bibliographic Details
Published in:Journal of international accounting, auditing & taxation auditing & taxation, 2007, Vol.16 (1), p.27-50
Main Authors: Jaggi, Bikki, Leung, Sidney
Format: Article
Language:English
Subjects:
Audit committee
Audit committees
Auditing
Audits
Boards of directors
Business accounting
Business ownership
Business studies
Discretionary accruals
Earnings
Earnings management
Economic concentration
Family dominance
Family firms
Financial management
Hong Kong
Ownership and control
Ownership Concentration
Regression analysis
Studies
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Summary:This study examines whether the establishment of audit committees by Hong Kong firms would constrain earnings management, especially in firms with family-dominated corporate boards, a condition unique to Hong Kong. The study uses the methodology of three-stage (3SLS) regression analyses to control for endogeneity among earnings management, voluntarily established audit committee, and corporate board size. The results of regression analyses based on 523 observations for the period of 1999–2000 when the audit committees were first established by Hong Kong firms show that overall audit committees play a significant role in constraining earnings management even in the business environment of higher ownership concentration. The effectiveness of audit committees is, however, significantly reduced when family members are present on corporate boards, especially when family members dominate the corporate board.
ISSN:1061-9518
1879-1603
DOI:10.1016/j.intaccaudtax.2007.01.003