Audit Committee Characteristics and Firm Performance: The Mediating Effect of Financial reporting Quality

Abstract

The study investigates the mediating effect of financial reporting quality on the relationship between audit committee characteristics and firm performance, using empirical evidence from listed firms in Ghana. This research uses data from the 37 listed firms in Ghana, for the period 2007-2019. The study adopts the system-GMM estimation techniques. The results of the study revealed that all audit committee (AC) characteristics positively and significantly influence firm performance. However, in relation to financial reporting quality, all AC characteristics employed except for AC independence, and legal expertise showed a significant and positive relationship. The result also revealed that financial reporting quality (FRQ) mediated only the relationships that met all the conditions of Baron and Kenny's (1986) mediation analysis between AC characteristics and firm performance. These include the relationship between AC size, financial expertise, industry expertise, gender diversity, and firm performance. Thus, the study recommends that in developing policies toward the characteristics of audit committees, emphasis should be placed on strengthening weak ones such as AC independence, which forms one of the primary requirements for an effective audit committee (AC).