Biao Xie
Southern Illinois University Carbondale
Hong Xie
University of Illinois at Urbana–Champaign
Weihong Xu
Vanderbilt University
Abstract: This study examines the association between audit committee activity of public firms and measures of earnings quality of these firms in the prior year. We hypothesize and find that audit committee activity is negatively associated with earnings quality, after controlling for a number of variables identified in prior research to affect audit committee activity. Our findings thus suggest that earnings quality is a fundamental determinant of audit committee activity. They also have implications for policy makers to prescribe the operations of audit committees. Since audit committee activity varies dramatically among firms due to economic differences among them, allowing some flexibility in specifying audit committee activity appears warranted.
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