Impact of audit committee characteristics and external audit quality on firm performance: evidence from India

Abstract

Purpose

The purpose of this paper is to analyse the influence of audit committee characteristics and external audit quality on the performance of non-financial public limited companies listed on the National Stock Exchange 100.

Design/methodology/approach

One-way random effect panel data regression was applied to 74 non-financial firms in the Nifty 100 from 2014 until 2019. The overall audit committee index and external audit index were built based on the new Indian Companies Act, 2013 and on a review of the literature to capture the impact of the new Act on firm financial performance.

Findings

The outcome of the study revealed that there is lack of evidence to show that audit committee characteristics improve the performance of top Indian non-financial listed firms. However, external audit quality was found to have a significant positive impact on the financial performance of firms as measured by Tobin’s Q, while firm size and leverage were found to have a significant impact on the financial performance of firms as measured by return on assets and return on equity.

Practical implications

This paper will be greatly beneficial for financial practitioners and policymakers because it provides practical suggestions and recommendations about the types of external audit that are indispensable for the overall effectiveness and performance of firms. The study findings may also aid strategic policy formulation and execution for better corporate governance practices for the purpose of profit and wealth maximisation.

Originality/value

To the best of the authors’ knowledge, to date, no previous research has evaluated the effects of audit committee features and external audit quality on the financial performance of firms in India after the implementation of the new Companies Act, 2013. Hence, this study fills this void in the present literature by examining the overall features of the audit committee and external audit and their impact on firm performance in the setting of India.

Citation

Al-ahdal, W.M. and Hashim, H.A. (2022), "Impact of audit committee characteristics and external audit quality on firm performance: evidence from India", Corporate Governance, Vol. 22 No. 2, pp. 424-445. https://doi.org/10.1108/CG-09-2020-0420