Audit committee effectiveness and family firms: impact on performance

Purpose: The purpose of this paper is to empirically examine the relationship between audit committee characteristics and firm performance, and whether family ownership and involvement moderate the latter relationship. Design/methodology/approach: Following Anderson and Reeb (2003), this paper estimates a two-way fixed effects model. A sub-sample analysis is used by first examining the impact of audit committee effectiveness on firm performance only in non-family firms and then only in family firms. A fully interacted model was also analyzed in the robustness tests. Findings: This paper finds that the audit committee characteristics of size, expertise and meeting frequency are positively and significantly related to non-family firm performance, while insignificantly related to family firm performance. Research limitations/implications: The evidence reported in this paper may be of use for regulators and policy makers pondering corporate governance reforms, as well as for investors, managers and minority shareholders concerned with firm performance and valuation. Originality/value: To the best of the authors’ knowledge, this is the first study of its kind to examine the moderating effect of family control and involvement on the relationship between firm performance and audit committee effectiveness in terms of size, expertise and meeting frequency.