Audit committee effectiveness and integrated reporting quality: Does family ownership matter?

Qaderi, Sumaia Ayesh; Ghaleb, Belal Ali; Qasem, Ameen; Waked, Sami Sobhi Saleem Article Audit committee effectiveness and integrated reporting quality: Does family ownership matter? Cogent Economics & Finance Provided in Cooperation with: Taylor & Francis Group Suggested Citation: Qaderi, Sumaia Ayesh; Ghaleb, Belal Ali; Qasem, Ameen; Waked, Sami Sobhi Saleem (2024) : Audit committee effectiveness and integrated reporting quality: Does family ownership matter?, Cogent Economics & Finance, ISSN 2332-2039, Taylor & Francis, Abingdon, Vol. 12, Iss. 1, pp. 1-16, https://doi.org/10.1080/23322039.2023.2291893 This Version is available at: https://hdl.handle.net/10419/321386 Standard-Nutzungsbedingungen: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. 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If the documents have been made available under an Open Content Licence (especially Creative Commons Licences), you may exercise further usage rights as specified in the indicated licence. https://creativecommons.org/licenses/by/4.0/ Cogent Economics & Finance ISSN: 2332-2039 (Online) Journal homepage: www.tandfonline.com/journals/oaef20 Audit committee effectiveness and integrated reporting quality: Does family ownership matter? Sumaia Ayesh Qaderi, Belal Ali Ghaleb, Ameen Qasem & Sami Sobhi Saleem Waked To cite this article: Sumaia Ayesh Qaderi, Belal Ali Ghaleb, Ameen Qasem & Sami Sobhi Saleem Waked (2024) Audit committee effectiveness and integrated reporting quality: Does family ownership matter?, Cogent Economics & Finance, 12:1, 2291893, DOI: 10.1080/23322039.2023.2291893 To link to this article: https://doi.org/10.1080/23322039.2023.2291893 © 2023 The Author(s). Published by Informa UK Limited, trading as Taylor & Francis Group. Published online: 08 Dec 2023. Submit your article to this journal Article views: 2883 View related articles View Crossmark data Citing articles: 9 View citing articles Full Terms & Conditions of access and use can be found at https://www.tandfonline.com/action/journalInformation?journalCode=oaef20 FINANCIAL ECONOMICS | RESEARCH ARTICLE Audit committee effectiveness and integrated reporting quality: Does family ownership matter? Sumaia Ayesh Qaderi 1,2 *, Belal Ali Ghaleb 3 , Ameen Qasem 1,4 and Sami Sobhi Saleem Waked 5 Abstract: With the increasing demand for greater financial and sustainability reporting transparency, firms globally have embraced integrated reporting (IR). However, little is known about how audit committee effectiveness (ACE) affects IR quality and whether family ownership moderates this relationship. This study aims to address this research gap by examining the impact of ACE on IR quality in the Malaysian market. In addition, the study further examined the moderating role of family ownership on this relationship. Data are extracted from firms’ annual reports and Thomson Reuters DataStream to analyse Malaysian firms spanning the period 2017–2021. Our findings indicate that ACE positively influences IR quality, fostering more transparent disclosure. Additionally, our analysis reveals a negative moderation effect by family ownership on the ACE-IR quality nexus. Further scrutiny of a sub-sample suggests a positive ACE—IR quality relationship in firms without family ownership, contrasting with a negative relationship in those with family ownership. Our results withstand alternative measures of IR, ACE, estimation techniques, and control for endogeneity issues. This research contributes to the literature on IR by adding new insights into the impact of ACE and family ownership on IR quality and provides important implications for regulators, stakeholders, researchers, managers, and investors. Subjects: Auditing; Corporate Governance; Corporate Social Responsibility & Business Ethics Keywords: integrated reporting; audit committee effectiveness; family ownership; Malaysian market 1. Introduction Integrated reporting (IR) represents an innovative reporting tool. Scholars widely acknowledge that the limitations of traditional types of corporate reporting (e.g., financial and sustainability reporting) have prompted the emergence of IR (Stubbs & Higgins, 2018). IR places significant emphasis on presenting corporate social responsibility (CSR) disclosures comprehensively and integrated (De Villiers et al., 2017). Unlike traditional CSR reporting, IR effectively incorporates essential CSR information and establishes connections between different types of data (Vitolla et al., 2020). The novelty of IR stems from its inherent integration of various disclosures, reflecting a distinct paradigm shift in reporting practices. Malaysian companies began to adopt IR in 2015. Government Malaysian has created an encouraging environment to foster high-quality reporting through a variety of initiatives, such as establishing the Integrated Reporting Steering Committee Qaderi et al., Cogent Economics & Finance (2024), 12: 2291893 https://doi.org/10.1080/23322039.2023.2291893 Page 1 of 16 Received: 13 August 2023 Accepted: 02 December 2023 *Corresponding author: Sumaia Ayesh Qaderi, Department of Accounting, College of Business Administration, University of Hail, Hail, Saudi Arabia E-mail: sumaia.qaderi.2020@gmail. com Reviewing editor: David McMillan, University of Stirling, United Kingdom Additional information is available at the end of the article © 2023 The Author(s). Published by Informa UK Limited, trading as Taylor & Francis Group. This is an Open Access article distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited. The terms on which this article has been published allow the posting of the Accepted Manuscript in a repository by the author(s) or with their consent. (IRSC) and launching a new IR award (Hamad et al., 2022). Further, the Malaysian government’s commitment to incorporating sustainable development goals (SDGs) into its 11th Malaysia Plan underscores its active role in guaranteeing the effective implementation and achievement of IR. Despite these initiatives, the adoption of IR in Malaysia is still voluntary, still questionable and needs more exploration. Empirically, IR quality (IRQ) has been posited to enhance the reputational capital of firms (Vitolla et al., 2020), mitigate information asymmetry (Cortesi & Vena, 2019), and facilitate access to finance (Raimo et al., 2021), decrease in a firm’s cost of capital (Vitolla et al., 2020) through diminished information asymmetries, resulting in improved accuracy of analyst forecasts. The audit committee (AC) represents the corporate boards, overseeing both financial and nonfinancial reporting which facilitates the mitigation of information asymmetry and agency issues between managers and stakeholders (Mohammadi et al., 2021). ACs have several key responsibilities, including reviewing financial matters, supervising the internal audit systems (Tumwebaze et al., 2022), influencing the board’s decisions, ensuring the accuracy and quality of information disclosed by the board (Raimo et al., 2020), and overseeing the overall disclosure process (Umar et al., 2023). Therefore, effective ACs may influence IRQ. Based on stakeholder-agency theory that states that internal corporate governance (CG) mechanisms play a critical role in supervising an organization’s sustainability practices and ensuring the company’s accountability to a diverse range of stakeholders (Hill & Jones, 1992; Tauringana & Chithambo, 2015). Extensive research have shown the beneficial impact of ACs attributes on various types of disclosure, including CSR reporting (Mohammadi et al., 2021; Qaderi et al., 2020), corporate philanthropic donations (Umar et al., 2023), risk disclosure (Almunawwaroh & Setiawan, 2023), forward-looking disclosure (Al Lawati et al., 2021), and sustainability reporting practices (Arif et al., 2021; Pozzoli et al., 2022; Tumwebaze et al., 2022). A few earlier works have analysed the impact of AC attributes individually (e.g., size, independence, financial expertise, and meetings) on IRQ and reported inconsistent results. Erin and Adegboye (2022) in South Africa and Raimo et al. (2020) in 125 international firms from 26 different countries indicate that AC’s size, meetings, and independence are positively related to IRQ. However, other studies reveal an insignificant relationship between AC’s independence, financial expertise and IRQ in South Africa (Ahmed, 2023; Ahmed Haji & Anifowose, 2016). Although two studies (e.g., Ahmed Haji & Anifowose, 2016; Wang et al., 2020) have explored the connection between ACE and IRQ in South Africa, none of these research have focused on the ACE-IRQ nexus in Asian region (i.e. Malaysia). Against this backdrop, ACE is an interesting question unexplored to determine IRQ. Our study, thus, adds to this ongoing debate by examining how ACE jointly affects IRQ. Family-owned firms are very powerful in society and play a key role in the world economy (Fehre & Weber, 2019). Family ownership can demonstrate a propensity to disclose IR and promote its development. Scholarly have found that family businesses significantly impacts corporate decision-making. Even though numerous studies have examined the moderating influence of family ownership on the relationship between AC and non-financial reporting (Alani & Makhlouf, 2023; ElKassar et al., 2018), no existing research have examined the moderating role of family ownership on the ACE-IRQ nexus. This research seeks to bridge these gaps in the IR literature and respond to recent calls for discussing AC’s role in shaping corporate responses relative to IR strategy (Raimo et al., 2020). Specifically, we aim to explore two main research questions: (1) Is effective AC related to greater IRQ? and (2) Is the ACE-IRQ nexus moderated by the family ownership? To answer these questions, we analyse an unbalanced Malaysian sample of 495 company-year observations during the 2017– 2021 period. The result shows that ACE positively affects IRQ. This means that firms having effective AC, engage in more IR initiatives This implies that firms with effective AC engage in more IR initiatives. However, our evidence finds that family ownership negatively moderates the positive impact of ACE on IRQ. Qaderi et al., Cogent Economics & Finance (2024), 12: 2291893 https://doi.org/10.1080/23322039.2023.2291893 Page 2 of 16 Malaysia offers a rich and natural setting for the pursuit of our research goals, primarily for the following reasons. First, the adoption of IR in Malaysia has experienced rapid growth, driven by support from the International Integrated Reporting Council (IIRC) and initiatives like the establishment of the IRSC by the Malaysian Institute of Accountants (MIA). According to Securities Commission Malaysia [Scm] (2021), large companies are encouraged to adopt IR by the 2017 Malaysian Code on Corporate Governance (MCCG) revision. This transition to IR is motivated by Malaysia’s strategic position within the ASEAN economic bloc and its goal of attracting capital, improving stakeholder communication, and enhancing international competitiveness while aligning with global reporting trends (Fayad et al., 2022). Second, Malaysian regulators have made extensive efforts to enhance the audit profession in Malaysia, through the introduction and subsequent revisions of the MCCG in 2012 and 2017. The MCCG 2017 revision emphasized the AC having non-executive directors with financial expertise while the 2012 code focused on strengthening the board of directors’ composition and their role as active fiduciaries; however, despite these efforts, there remains a pressing need for significant improvement in audit quality to ensure the preservation of firm quality in Malaysia. This study contributes to the AC and IR literature in several ways. Our first contribution lies in our study differs from previous research (Ahmed, 2023; Erin & Adegboye, 2022; Raimo et al., 2020) since we explore the role of ACE in influencing IRQ in the Malaysian market using stakeholderagency theory. To our knowledge, no empirical study attempted this in Malaysia. This topic remains relatively limited since most studies have investigated the relationship between individual AC attributes and IRQ. Our second contribution to the family business literature pertains to our analysis highlighting the moderating role of family ownership, resulting in advancing the debate on the role of family ownership. This is, our knowledge, the first research anywhere to investigate the moderating impact of family ownership on the correlation between ACE and IRQ. Practically, the study’s findings provide policymakers with valuable insight into the types of firms that are more inclined to participate in IR reports and those that may require some policy support to enhance their IR practices in Malaysia to meet the growing expectations of stakeholders. This paper is organised as follows: Section 2 discusses the literature, followed by Section 3, outlining the data sources and empirical methodology. Section 4 presents the research findings. Section 6 concludes the paper. 2. Theoretical background and hypothesis 2.1. Stakeholder-agency theory The combination of stakeholder theory and principal-agent theory, known as stakeholder-agency theory (Hill & Jones, 1992), provides a valuable theoretical framework to examine the AC-IRQ relationship. By integrating these two theories, we can better understand and analyse the complex dynamics between stakeholders and managers concerning IR (Raimo et al., 2022). Thus, we draw on stakeholder-agency theory in this study to examine whether ACE can make boards more effective in implementing IR strategy. Stakeholder-agency theory posits an active stakeholder dialogue and a trade-off of the interests of stakeholder groups (Veltri et al., 2021). Gerged (2021) reports that stakeholder-agency theory considers a broader group of stakeholders beyond just shareholders. This theory provides valuable insights into how corporations navigate various external and internal pressures, making it a suitable framework for understanding the relationship between CG mechanism and non-financial reporting. Furthermore, stakeholder-agency theory argues that the internal CG mechanisms are responsible for overseeing an organization’s sustainability practices and ensuring that the company remains answerable to a diverse range of stakeholders (Tauringana & Chithambo, 2015). According to this theory, an effective AC characterised by size, independence, financial expertise, and regular meetings is expected to enhance IRQ (Velte, 2018). 2.2. Literature review IR has emerged as a prominent reporting approach that seeks to present a comprehensive picture of an organization’s value-creation process by integrating financial and non-financial information Qaderi et al., Cogent Economics & Finance (2024), 12: 2291893 https://doi.org/10.1080/23322039.2023.2291893 Page 3 of 16 (Eccles & Krzus, 2010; Nicolò et al., 2023; Qaderi et al., 2023). The quality of IR has become a significant focus of research, as it holds the potential to enhance transparency, accountability, and communication between organizations and their stakeholders (Adams et al., 2016). In terms of measuring the IRQ, recent studies have explored various dimensions of IRQ, from the comprehensiveness of content to alignment with reporting frameworks (Kılıç & Kuzey, 2018; Pistoni et al., 2018). Using an IR scoring model, Kılıç and Kuzey (2018) evaluated the level of disclosure in IR obtained from the IIRC website, revealing that, despite firms adhering to the global framework, the quality of their IRs remains low, with limited information on pertinent aspects. However, IRQ is beneficial for a firm. For instance, Pistoni et al. (2018), using data from the148 companies in 16 countries, indicate that higher IRQ is linked with better financial performance, lower cost of capital, and higher reputation. Muttakin et al. (2020) report that IR is related to lower cost of debt and higher financial reporting quality in emerging markets (e.g., South Africa), particularly for companies with higher financial reporting quality, suggesting that it enhances the credibility and transparency of financial information, reducing information asymmetry and agency costs, and improving capital accessibility and cost. More recently, Nicolò et al. (2022) reveal that firm size, industry environmental sensitivity, and profitability positively influence the level of visual disclosure of IR in 134 international companies. Additionally, some research has examined the CG implications of IRQ. Pavlopoulos et al. (2017) indicate that disclosure on IRQ is positively linked with CG among 82 international firms. However, while two studies, namely Ahmed Haji and Anifowose (2016) and Wang et al. (2020) in the context of South Africa, have explored the link between ACE and IRQ, there is still a significant gap in the literature about how ACE affects IRQ within Asian-emerging economies, such as Malaysia. Therefore, this research seeks to address and fill this gap in the IR literature. 2.3. Hypotheses development AC characteristics are part of internal CG mechanisms, which are crucial in overseeing and monitoring management decisions (Karim et al., 2021; Pucheta-Martínez et al., 2021). For this reason, AC is essential in shaping a firm’s social, ethical, and environmental responsibility and strategic decision-making (Tumwebaze et al., 2022; Umar et al., 2023). According to stakeholderagency theory, the AC’s role in monitoring is not solely crucial for shareholders as principals but also extends to other stakeholders, who rely on both reliable financial and non-financial reporting as well as associated control systems (Velte, 2023). Empirical studies examining the influence of individual AC attributes on IRQ remain limited (Raimo et al., 2020). Furthermore, the existing evidence is inconclusive, highlighting the need for a more comprehensive and nuanced analysis to validate the previous findings. Some researchers have independently analysed the individual AC attributes influencing IRQ (Ahmed, 2023; Erin & Adegboye, 2022; Raimo et al., 2020; Velte, 2018). For example, Raimo et al. (2020), drawing data from 125 international firms in 2017, demonstrate that AC’s size, independence, and meetings are positive, while financial expertise is insignificantly related to IRQ. Another study found that AC attributes (e.g., size, independence, and financial expertise, except meeting frequency) are essential in driving corporate IRQ for the top 100 of South African listed companies (Erin & Adegboye, 2022). In an analysis of Sri Lankan firms, Cooray et al. (2020) demonstrate that AC independence is positively associated with IRQ. In contrast, Ahmed (2023) shows that AC characteristics do not determine IRQ in South Africa. Moving to analyse the. Ahmed Haji and Anifowose (2016) reveal that ACE is essential in increasing IRQ. This is because firms with effective AC tend to disclose more information, which could decrease information asymmetry and increase IRQ. Similarly, Wang et al. (2020) indicate that effective AC leads to a high corporate IRQ. They reason that effective ACs are more likely to adopt more IR policies. Velte (2018) reports that ACs’ sustainability and financial expertise positively impact the readability of integrated reports. Qaderi et al., Cogent Economics & Finance (2024), 12: 2291893 https://doi.org/10.1080/23322039.2023.2291893 Page 4 of 16 Based on the aforementioned prior studies, there is no evidence regarding the nature of the ACE-IRQ relationship in Malaysian companies. In line with the stakeholder-agency theory, we predict that higher effective ACs will lead to better IRQ. Thus, we posit the following research hypothesis: H1. Audit committee effectiveness is positively related to integrated reporting quality. For the moderating role of family ownership on the ACE-IRQ relationship, family ownership represents the family’s participation in firms. Whereas Malaysia is one of the countries where family members have greater involvement in firms (Badru & Qasem, 2021; Ghaleb et al., 2020), this also happens in other countries. Numerous previous studies have found that family ownership is linked with decision-making processes, particularly those relative to internal control quality (Jadoon et al., 2021), earnings management practices (Ghaleb et al., 2020; Kumala & Siregar, 2020), firm performance (Yun et al., 2021), and equity capital (Gavana et al., 2017). In addition, family control diminishes the monitoring role of ACs (Jaggi & Leung, 2007) and board effectiveness (Ararat et al., 2015; Omer & Al-Qadasi, 2019) toward financial reporting quality. This could be because family shareholders involved in management are expected to monitor managers effectively, reducing the governance monitoring role (Omer & Al-Qadasi, 2019). Further, researchers argue that family members may focus more on satisfying the family interests than other stakeholders’ needs (Veltri et al., 2021). Thus, they will not be interested in disclosing more information (Ananzeh et al., 2023; Arayssi & Jizi, 2023). Under the stakeholder-agency theory, family ownership may constrain non-financial reporting (Veltri et al., 2021). Little research has explored the direct impact of family ownership on corporate decisions, such as CSR transparency (Badru & Qasem, 2021; Rahman & Zheng, 2023) and sustainability reporting (Gavana et al., 2017). These studies find that companies with a greater percentage of family ownership tend to improve their CSR practices and disclosure by adopting or aligning with CSR guidelines and regulations. Their pursuit of state support drives this as a persuasive stakeholder, enabling them to attain economic efficiency through access to additional subsidies and gain moral legitimacy in their business operations. However, two empirical research have investigated the moderating effect of family ownership on the AC-non-financial reporting relationship. For example, El-Kassar et al. (2018) reveal that the involvement of family members in the corporate boards and decision-making moderates the positive AC-CSR relationship. Alani and Makhlouf (2023) also find that family ownership adversely affects the AC independence-CSR reporting relationship. This is because of the interference of family members in the firm’s management, leading to decisions that affect social activities. Based on the aforementioned literature review, no research studies attempts to examine empirically the moderating role of family ownership on the ACE-IRQ link. Given the lack of moderating literature on family ownership and consistent with the stakeholder-agency theory, this study expects that the negative power of family ownership on IR can be reduced by having an effective AC. Hence, this study proposes the following hypothesis: H2. The positive relationship between the audit committee’s effectiveness and integrated reporting quality is adversely moderated by family ownership. 3. Research design 3.1. Sampling and data collection Our initial sample comprises all Malaysian-listed companies that applied for IR from 2017 to 2021. Since the MCCG revision in 2017 recommended large firms implement an IR strategy in 2017, IR disclosure data is available from 2017. Our sample covers a total of 509 company-year Qaderi et al., Cogent Economics & Finance (2024), 12: 2291893 https://doi.org/10.1080/23322039.2023.2291893 Page 5 of 16 observations for five years. From the original sample, 14 company-year observations were excluded due to data unavailability and delisted from Bursa Malaysia over the study period. This leaves us with 495 firm-year observations across 13 sectors of activity. The sample process is detailed in Table 1. IR data was manually collected from firms’ annual reports, whereas the financial data of the sample firms were gathered from Thomson Reuters DataStream. 3.2. Estimation model The multivariate regression model is specified as follows: In these variables, i denotes the firm, t represents the fiscal year, and ε it is the residual term. The dependent variable is IRQ. To assess this variable, we developed an IR index using the International IR framework, encompassing form, background, assurance and reliability, and content indicators (Pistoni et al., 2018). This index was created through a manual content analysis of IR and firms’ annual reports. This approach is more informative in earlier studies (Pistoni et al., 2018; Raimo et al., 2020). More specifically, we employed an aggregate construct that involved the combination of 100 items and measured the percentage of qualitative items a firm disclosed to total items in the disclosure index. ACE is represented by the variables for AC effectiveness (e.g., size, independence, financial expertise, and meetings). In addition to ACE, board independence, audit quality, and firm-specific characteristics are included in the regression model as control variables. We use seven control variables and incorporate industryand year-fixed effects. Table 2 summarizes all the variables’ definitions and data sources. Following the AC and IR literature (Ahmed, 2023; Raimo et al., 2020), this study applies ordinary least squares (OLS) regression. 4. Empirical results 4.1. Descriptive statistics Table 3 shows the descriptive statistics (mean and standard deviation) for all the numerical variables used in the analysis for 2017–2021. The dependent variable, IRQ, has a mean of 54.648%. Regarding the independent variables, the mean ACE is 2.826, indicating moderate levels of effective AC in the sampled firms. Concerning the moderating variables, the average family ownership (FOWN) is 12.752%. Regarding the control variables, the mean BINDEP is 53.6%. On average, firm size and age (logarithms) are 15.749 and 3.323, respectively, while the mean market-to-book value ratio (MTBV) is 3.541. In addition, the average return on assets (ROA) is 5.777%, and the mean firm leverage (LEV) is 49.586%. Finally, only 82.200% of the firms are audited by one of the BIG4 firms. Table 3 illustrates Pearson’s correlation matrices for all variables employed in this study to assess the presence of multicollinearity. The findings indicate that none of the coefficient values exceeds 0.499, indicating the absence of significant concerns related to multicollinearity in this study. Table 1. Sample selection Details Firm-years Observations that apply IR 509 Unavailability data and delisted from Bursa Malaysia (14) Final sample 495 Qaderi et al., Cogent Economics & Finance (2024), 12: 2291893 https://doi.org/10.1080/23322039.2023.2291893 Page 6 of 16 Table 2. Variables definition Variable Abbreviation Definition References Dependent variable IR quality IRQ The ratio between the aggregation of 280 items a firm disclosed and the total items in the disclosure index (280 items) Ahmed Haji & Anifowose, (2016) Independent and control variables AC effectiveness ACE The aggregation of four dummy variables: (1) AC size, represented by a binary variable, is given “1” if a firm has an AC size exceeds the median and “0” otherwise, (2) AC independence, represented by a binary variable, is given “1” if a firm has AC independence exceeds the median and “0” otherwise, (3) AC financial expertise, represented by a binary variable, is given “1” if a firm has AC with financial expertise exceeds the median and “0” otherwise and (4) AC meetings, represented as a binary variable, takes the value of “1” if a firm conducts more meetings per year than the median and “0” otherwise Baatwah et al. (2021) Family ownership FOWN Percentage of family-owned shares to total firm shares Al Fadli et al. (2022) Board independence BINDEP Percentage of independent directors Raimo et al. (2020); Yun et al., (2021) Audit quality BIG4 Dummy variable: “1” if the external auditor is one of the BIG4, “0” otherwise Qaderi et al., (2023) Firm size Ln_FSIZE Natural log of total assets Cooray et al., (2020); Wang et al. (2020) Firm age Ln_FAGE Natural log of firm age Ahmed Hashed & Ghaleb, (2023); Rahman & Zheng, (2023) Return on asset ROA Ratio of net income to total assets Alshorman et al. (2022); Qaderi et al. (2023) Firm leverage LEV Ratio of liabilities to total assets Al-Jaifi et al., (2019) Market-to-bookvalue ratio MTBV Ratio of market value to book value per share Qaderi et al. (2023) Variables used in the additional analysis IR quantity IR quantity Ratio of IR information disclosure quantity Ahmed Haji & Anifowose, (2016) AC size ACSIZE Number of members on an AC Ahmed, (2023); Qaderi et al. (2020); Raimo et al. (2020) AC independent ACINDEP Proportion of AC independent directors on the board AC financial expertise ACEXP Proportion of AC directors holding financial experts AC meetings ACMEET Number of AC meetings held during the year AC effectiveness dummy ACE_DUM A binary variable, equals “1” if the ACE is above the median of the sample distribution and “0” otherwise Baatwah et al. (2019) Inverse Mills ratio IMR Inverse Mills ratio obtained from the probit model of ACE - Industry average of AC effectiveness ACE^ Proportion of ACE instrumented with industry average ACE Al-Jaifi et al. 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