| Summary: | 碩士 === 國立中正大學 === 會計與資訊科技研究所 === 100 === Prior research uses ERC (Earnings Response Coefficient) approach to analyze the effectiveness that firms set up audit committee. But, ERC can't appropriately measure the information quality of earnings when the market is not efficient. In this paper, we investigate the role that audit committee plays in valuation of accruals and cash flow. We predict firms with audit committee can help reduce accrual mispricing problem.
We employ two stage rational expectations procedure developed by Mishkin (1983). The result provides evidence that firms with audit committee can mitigate the mispricing and vice versa. The result represents firms with audit committee can provide accurate information to investors. According the result, investors can better understand the accounting information's persistence. Our research also tests the impacts of audit committee 's characteristics. First, the result reveals that audit committees with higher compensation per capita are associated with larger accrual mispricing. Second, our research is consistent with the findings by Vafeas (1999) and Ghost (2010). Audit committees will usually increase meetings frequency in response to firm's poor operating performance, but it can't help investors mitigate accrual mispricing. Our result find that firms with more frequent audit committee meeting are associated with larger accrual mispricing.
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