Audit committee adoption and firm value: evidence from UK financial institutions

Abstract

Purpose This paper aims to examine the impact of audit committee (AC) adoption on the financial value of financial institutions in the UK and also to examine the impact of the establishment of an AC on firm value during the pre/post-global financial crisis era. Design/methodology/approach The paper embarks on a theoretical and empirical literature review on AC adoption and its impact on a firm’s financial value. The paper uses data from 63 financial institutions and covers a 12-year period. Findings The empirical results indicate that the adoption of an AC by financial institutions has a positive and statistically significant impact on firm value. The results from the pre-crisis period also indicate that the adoption of an AC makes a positive and significant contribution to firm value. However, there is no impact on firm value during the post-crisis period. The results suggest that the entire UK economy experienced an economic downturn after the financial crisis (2009-2011), and financial firms were no exception. Research limitations/implications This study helps to fill research gaps on the relationships between ACs and firm value as they exist in UK financial institutions. These findings are important for policymakers and regulators. Practical implications This research will encourage firms to establish ACs. Social implications This new finding about the importance of firms having an AC in place is important for policymakers and regulators. Originality/value To the best of the authors’ knowledge, this research is the first to conduct an empirical study of the effect of AC adoption on UK financial institutions and firm value. Second, no single study has been conducted on the effects of AC adoption and its impact on either the pre- or post-financial crisis periods. This is the first paper to provide such empirical evidence.