The Effects of Audit Committee Characteristics on Firm Financial Performance: A Case Study of the NASDAQ Stockholm.

Abstract

This thesis studies the effect of audit committee characteristics on firm financial performance, using ROA as the proxy. In line with agency theory, a well governed and directed firm should comparatively perform better than a firm that is not well governed and directed. On the other hand, resource dependency theory maintain that firms must be dynamic to incorporate the changing nature of environment in decision making process regarding provision of resources. More specifically, audit committee characteristics such as size and frequency of meetings should be varied to reflect demands presented by environmental factors. Taking a sample of available listed firms on NASDAQ Stockholm Sweden for years 2018 and 2019, I find that the presence of audit committee does not necessarily lead to a better financial performance. On average, ROA of firms without audit committee were higher than ROA of firms with audit committee. I equally find that both the size of an audit committee and the frequency of their meetings does not have a positive correlation with ROA but it showed that audit committee number of meetings could be used to improve the networking capital position of listed firms in Sweden. These findings suggest that agency cost of having audit committee have not yielded a commensurate return on asset. The findings of this study have significance for investors, managers, researchers, and policymakers.