How Many Simultaneous Audit Committee Memberships Are Too Many?

Abstract

Recent research by Sharma, Sharma, Tanyi, and Cheng (2020) provides new insight into directors serving on multiple public company audit committees. Specifically, they investigate how an individual audit committee director serving on multiple audit committees is related to companies’ cost of equity capital. Their evidence suggests that serving on multiple audit committees is viewed positively by investors up to a certain point, but beyond that point investors become concerned. This turning point, on average, is 3.5 audit committees for retired directors and 1.5 audit committees for directors in full-time employment. These results have implications for numerous stakeholders including investors, proxy advisors, boards, nominating committees, stock exchanges, and policymakers. They also have implications for future research.