Effectiveness of Audit Committee Features to Asymmetric Information with Audit Quality as Moderating

Abstract

Purpose: The study aims to explore the effectiveness of audit committee features, such as the total members, meeting frequency, financial competence, and independence, as a determinant of asymmetric information with audit quality as moderating. Design/Method/Approach: We employed a regression model with panel data, analyzing 260 firm-year observations for entities whose shares traded on the Indonesia Stock Market from 2017 to 2021, all of which fall under the category of public interest entities. Findings: Our examination uncovered meeting frequency was statistically significant in reducing asymmetric information, and audit quality enhanced the interrelation of the meeting frequency, reducing asymmetric information. In contrast, our examination could not uncover any correlation between the total members, financial competence, and independence with asymmetric information. In addition, the study demonstrated no relationship between audit quality enhancing correlation between the total members, financial competence, and independence to mitigate asymmetric information. Theoretical Implications: The study supports agency and asymmetric information theories by demonstrating the significant role of oversight through frequent meetings in mitigating conflicts between agents and principals. This academic support enriches the existing literature and provides valuable insights for future research in the field. Practical Implications: Our findings suggest that the regular occurrence of dialogue between audit committees and management needs to be increased to provide better oversight and ultimately improve organizational performance, benefiting stakeholders and the board. Finally, our study implies the current regulations in Indonesia have not succeeded in encouraging the efficacy of audit committee monitoring through other features of audit committees as mandated by Indonesian regulation. Hence, regulatory breakthroughs by policymakers are essential to foster the performance of audit committees. Originality/Value: Our study provides a novel perspective on how audit committee features influence asymmetric information by providing insights by investigating the involvement of audit quality as a moderating factor. Research Limitations/Future Research: While our study may be limited in its applicability due to the constrained data sourced from the Indonesian Stock Market, the potential insufficiency of proxy variables in apprising audit committee efficacy, and the restricted use of control variables, addressing these constraints should be a focus of future studies to achieve a more comprehensive understanding. Paper Type: Empirical JEL Classification: G34, O16