Policy makers around the world have focused on corporate governance reform since the Asian financial crisis and scandals in the United States such as the Enron debacle. In particular, policy makers have focused on the establishment of independent audit committees to improve investor confidence in reported accounting information. In a sample of East Asian companies, we find that the negative relation between concentrated control and earnings informativeness that was documented prior to the Asian financial crisis persists in a more recent period, even though many corporate governance reforms have been adopted since the crisis to improve financial disclosure. We do, however, find that earnings informativeness is strengthened by the independence of the audit committee of a firm, but these results seem to be driven by independent directors with financial expertise. In addition, the increased reliability that is associated with the combination of financial expertise and objectivity of the independent directors of the audit committee appears to more than offset the detrimental effect that is associated with concentrated control. The results in this paper suggest that an emphasis on audit committee independence alone may not be enough to enhance earnings informativeness. Instead, focusing on both the financial expertise and objectivity of independent directors who are appointed to the audit committee may be a more fruitful way to increase investor confidence in accounting information, especially when ownership is concentrated.
Keywords: Corporate Governance; Ownership; Earnings Informativeness; Audit Committee
