The effects of audit committee characteristics on its oversight effectiveness: evidence from Hong Kong

This study examines the relationships between audit committee (AC) characteristics and its oversight effectiveness primarily measured as accrual and real earnings management in Hong Kong after the Asian financial crisis in 2008 for a sample of Hong Kong Hang Seng Index between 2010 and 2015. Using a total of 1719 firm-year observations, we find that audit committee size is negatively associated with discretionary accruals, while the average age of the audit committee members is positively associated with discretionary accruals. The average age of the audit committee members is negatively associated with real earnings management while audit committee tenure and the number of audit committee meetings motivate managers to engage in real earnings management. The findings are useful to regulators in Hong Kong and to those with similar institutional and cultural environments and ownership structure.