Audit committee characteristics and firms’ investment efficiency: the moderating effect of audit committee mandatory requirements

ABSTRACT This study examines how the relationship between audit committee characteristics and firms’ investment efficiency is affected by mandatory requirements for audit committees. Audit committee activity has a positive relationship with investment efficiency. The results suggest that the independence and expertise of audit committees cannot increase investment efficiency if the audit committees are less active. This positive relationship is more pronounced for firms with mandatory audit committees. Moreover, this relationship is strengthened when external governance attracts shareholders’ attention to corporate issues. The results suggest that the positive relationship between audit committee activity and investment efficiency is enhanced when the firms are under external pressures on corporate governance. The findings provide significant implications for countries that still do not have mandatory requirements for audit committees.