Determinants of corporate board monitoring and audit committee diligence: a study of KSE- listed firms of Pakistan

Abstract

The purpose of the study was to investigate and empirically determine the determinants of corporate board and audit committee meeting frequency in Pakistani listed companies. The explanatory variable of the study has incorporated as the corporate board characteristics and dimensions of ownership structure. Dimension of corporate board are incorporated as, proportion of independent director, CEO duality and board size. While the ownership structure is incorporated as, concentrated ownership, insider ownership and outsider block holding. The dependent variable of the current study are incorporated as corporate board and audit meeting frequency i.e. the number of board an audit meetings in a financial year. The study also incorporates control variables as, the firm size, leverage and age listing. The determinants were related to the ownership structure and to the board characteristics. The study was conducted in an agency setting featured by high ownership concentration and large insider shareholders. Hypotheses were developed based on agency theory. The empirical evidence was provided by a sample of nonfinancial companies listed at Karachi stock exchange. Convenient sampling by employing secondary source data ranging from 2007 to 2012 was collected for empirical data analysis. Estimated generalized least square regression is used in panel data model to test the relationship. Robustness checks through Hausman specification test provide further empirical support. Based on 500 year firm observations, the study found that CEO duality and block holding ownership negatively impact- either on the corporate board or on the audit committee meeting frequency. Whilst the board size and proportion of independent directors in the board has a positive impact. The findings of the study are consistent with the hypothesis that insider and concentrated ownership are substitute control mechanisms. The findings also suggest that board and audit meeting are more frequent in large firms as compared to small and medium size firms. This is the first most empirical investigation providing the empirical evidence on the determinants of corporate board and audit committee meeting frequency in a contextual setting featured by nonfinancial sector of Pakistan. The study provides an agency theory-based examination of the board and audit committee meeting frequency, in a setting featured by concentrated and insider ownership.