The signalling role of audit committee characteristics and the cost of equity capital

Australian evidence

Ranjith Appuhami*

*Corresponding author for this work

Research output: Contribution to journalArticle

2 Citations (Scopus)

Abstract

Purpose: The purpose of this study is to examine whether audit committee characteristics influence the cost of equity capital. 

Design/methodology/approach: Drawing on signalling theory, this study hypothesises that the presence of an AC with adequate characteristics serves as a market “signal” of the credibility of the effective monitoring process and hence affects the perception of capital providers on the cost of equity capital. The study uses a multiple regression analysis on data collected from a sample of top Australian listed firms.

Findings: The study finds that audit committee characteristics such as size, meeting frequency and independence are significantly and negatively associated with the cost of equity capital. However, there is no significant evidence that the financial qualifications of audit committee directors are associated with the cost of equity capital.

Originality/value: While there have been several studies examining the cost of equity capital, there is very limited research on the cost of capital in Australian firms. The study aims to fill this gap, in part, and contribute to the literature on corporate governance and signalling theory.

Original languageEnglish
Pages (from-to)387-406
Number of pages20
JournalPacific Accounting Review
Volume30
Issue number3
DOIs
Publication statusPublished - 6 Aug 2018

Keywords

  • Audit committee characteristics
  • Australia
  • Corporate governance systems
  • Cost of capital
  • Signalling theory

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