Does Audit Committees’ Equity-based Compensation Affect Firms’ Cost of Equity Capital and Credit Rating?

• Main Author: 陳若晞
• Other Authors: 俞洪昭
• Format: Others
• Language: zh-TW
• Online Access: http://ndltd.ncl.edu.tw/handle/99367355525354933793

碩士 === 國立政治大學 === 會計研究所 === 103 === This study examines how investors and credit rating agents react to audit committees’ equity-based compensation. Based on a sample of S&;P 1500 firms during 2006-2010, the empirical results show that firms who pay audit committees higher portion of equity-based compensation have lower cost of equity capital and lower credit rating. These results suggest different information users perceive and react to equity-based compensation in different ways. Particularly, investors appear to perceive that higher portion of equity-based compensation can align audit committee members’ interest with the shareholders’, leading to more effective monitoring and smaller information risk. Therefore, investors react by reducing their cost of equity capital. In contrast, credit rating agents appear to perceive that higher portion of equity-based compensation may harm audit committees’ independence, resulting in decreased quality of financial reporting. Therefore, credit rating agents react by downgrading firms’ credit ratings.