The purpose of this research is to examine the impact of audit committee financial experts on the risk of financial corruption in public companies.
A time-lagged, matched-pairs sample of 352 corporations was utilized to test the study's hypotheses (176 financially corrupt firms plus 176 compliant firms). To uncover financially corrupt firms, 2,895 Accounting and Auditing Enforcement Releases from the Securities and Exchange Commission were thoroughly evaluated.
The results show that financial experts on audit committees generally increased financial corruption. However, the impact was reversed when audit committees had three or more financial experts, showing that having at least three financial experts reduced financial corruption.
The study's findings call into question the long-held practice of appointing at least one financial expert to audit committees. This study offers a novel approach to improve corporate oversight and reduce financial corruption by having at least three financial experts on audit committees.
