Academic journal article International Management Review

The Impact of Audit Committee Characteristics on the Performance: Evidence from Jordan

Academic journal article International Management Review

The Impact of Audit Committee Characteristics on the Performance: Evidence from Jordan

Article excerpt


The objective of this paper is to investigate the relationship between audit committee characteristics (namely: audit committee size, financial experience, and audit committee independence) on performance, which includes financial, operating and stock performance. The study sample contained 106 corporations from the financial sector listed in the Amman Stock Exchange Market with a total of 212 observations during the 2008-2009 sample years. The results showed that the audit committee has an impact on financial and stock performance. It does not have an effect on operating performance.

[Keywords] audit committee characteristics; performance; Amman stock exchange.

(ProQuest: ... denotes formulae omitted.)


The main purpose of this study is to examine the audit committee on performance over the period of 2008-2009. The concept of the audit committees differs according to the goals, functions, and responsibilities assigned to them. However, the need to determine the impact of audit committee characteristics on performance quality has become the focus of increasing attention among accountants, academics, researchers and investors. Many countries over the world and local and international vocational bodies have spent more effort to issue instructions and standards that, when adopted help restore credibility in the financial data declared. It will also help in activating the role of the audit committee, which consolidates functioning, and independence of the external auditor for being an independent part providing his opinion on the declared financial data fairly and objectively. One of these efforts is the recommendation of the Securities and Exchange Commission (SEC). The New York Stock Exchange NYSE, and the National Association of Securities Dealers NASDA, formed a Blue Ribbon Committee (BRC) in 1999 to be a natural reaction to the distortions in financial statements.

These committees aimed to develop recommendations, which help improve financial reports through consolidating their roles. It also put down a series of qualities that should be available in order to have an active audit committee. Such qualities include the size of the committee, experience, financial knowledge of members, degree of their independence, and frequency of meetings. In July 2002, the US issued the Sarbanes-Oxley law, described by analysts to be the most significant and comprehensive American legislation since the forming of the SEC, because of its impact on general companies and independent accountants. Some of the large reforms that the legislation included were the right of declaration, submission of financial reports by foreign general company's corporate governance, and monitoring of accounting auditors. According to Article 301 of the legislation, a special part was made stressing the duties and formation of an audit committee in order to secure the safety and credibility of the report of the external auditor who might be put under management pressure that might be imposed on him. As for Jordan, much legislation that supports corporate governance was issued in order to regulate work of the audit committee in Jordanian companies. Our study attempts to discuss such legislations related to audit committees to ensure their application by Jordanian companies. Afterwards, the study tries to test the role played by the audit committee in improving the performance.

Background of the Audit Committee

Audit Committee in Jordan

Jordan tried to enact a group of legislations to support corporate governance one of which is the Stock Exchange Law No. 76 (2002). This law obliges all Jordanian joint-stock companies to form an audit committee consisting of three non- executive members from the company's board of directors. The duties and responsibilities of such committee are determined by the instructions issued by the board that comply with Article 46. It also secures Banking Law No. 28 (2000), which obliges all Jordanian banks to form audit committees. …

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