Audit Committee Attributes and Share Price Evidence from Banking and Finance Companies Listed on the Colombo Stock Exchange

Abstract

Past corporate collapses such as Enron, WorldCom, Xerox and similar others put a spotlight on the attention of corporate governance mechanism. The corporate governance mechanism is the system governing and controlling the activities of the companies. The importance of audit committees in ensuring the quality of corporate financial reporting has come under considerable scrutiny by both the academia and corporate governance regulatory bodies. The purpose of this paper is to examine the impact of Audit Committee (AC) attributes on the share price of Banking and finance sector in Sri Lanka. The population of the study comprises firms listed under banking and finance companies listed in Colombo Stock Exchange. The number of firms listed under banking and finance sector on Colombo Stock Exchange as at the time of data collection (31st March 2018) was 72, out of which 26 firms were selected using simple random sampling method for this study. The data was collected for the period from 2011 to 2017 and obtained from the web site of Colombo Stock Exchange. Size of the Audit Committee, Audit committee independence and Audit committee meetings are considered as independent variables of the study. The dependent variable was share price of the firm which was measureed through share price. In addition to this, firm size, company age, board size was considered as control variables in this study. To test the hypothesis of this study, simple least square regression was utilized by using EViews 8 version. The findings suggest a significant negative relationship between Size of the audit committee members, audit committee meeting and share price of banking and finance companies, while board size and company age is significant and positively related with share price. The audit committee independence is non-significant and negatively related with share price. Further the study revealed that there is negative and non-significant relationship between firm size and share price. In this paper, the audit committee attributes that influence the share price most efficiently are identified. Due to lack of researches covering this area in Sri Lankan Banking and finance sector, this study would provide additional knowledge to future researchers and academicians.